Washington — The latest snapshots of economic activity Friday gave Federal Reserve policy-makers more reasons to cut interest rates aggressively at their meeting Tuesday to revive a slumbering economy.
Wholesale prices were almost flat in February, and factory production remained in free-fall.
With inflation posing little current risk to the economy, analysts said, the Fed has plenty of room to lower interest rates again. Not only should that give a boost to the overall economy, which is mired in a slowdown, it also should help manufacturing, they said. That sector is bearing the brunt of the economy's weakness, so much so that many believe it is in recession.
"The rot is spreading in manufacturing," said David Wyss, chief economist at Standard and Poor's DRI. "The economy just doesn't seem to be moving."
Wyss and some other economists said they are betting that the Fed will cut interest rates by a bold three-quarters of a percentage point next week, given the latest reading on inflation and industrial activity as well as the stock market's problems.
"I'd say there is a 60 percent probability of a three-quarter point reduction on Tuesday, primarily because of the low rate of underlying inflation, the weakness in the factory sector and the negative feedback that could come from a continued slide in the stock market," said Lynn Reaser, chief economist at Banc of America Capital Management.
The tame inflation news came in a Labor Department report that showed the department's Producer Price Index, which measures inflation pressures before they reach store shelves, edged up a tiny 0.1 percent in February, despite higher prices for natural gas and other energy products.
But in further evidence of the faltering economy, production at the nation's factories, mines and utilities plunged a bigger-than-expected 0.6 percent, the fifth-straight monthly decline, the Federal Reserve said. The weakness was broad-based.
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