Market Talk

[Show-me]

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I have been looking long and hard at both Peabody BTU and Arch. Arch has to much debt and not enough proven reserves. I feel they are following the leaders. BTU has 50 years of low sulfur reserves but both could not get enough rail cars to move their goods. I do not know what the impact of N.O. will be. All ports and rail are down hard, so I have taken a pause. I still like coal but do not know about the timing. I just don’t know. All of the natural gas power plant are feeling the pinch from higher energy prices. Natural gas was cheap at first and little environment problems. Problem was everyone jumped on the same bandwagon. The trickle down is coming. My local Rural Electric Cooperative (REC) sends me a monthly rag that said the supplier in Springfield, MO is raising rates 11% wholesale and that locally they would raise rates 6.5% for starters at the 1st of the year. Ouch! I do believe coal will be king unless people start liking nuclear. We do not like going without electricity.

 

[Rolo]

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Show-me wrote:

I do believe coal will be king unless people start liking nuclear.

It's pronounced 'nucular', Lisa, NUUU-CUUUU-LEEEER

I thought new processes were developed that make coal more cleaner and cheaper than all of its counterparts. Or was it in refining? I read it long enough ago to completely forget about it. D'oh!

I know the Dow 15 utilities have been kickin' butt. A fund of that nature would be nice.

 

[Show-me]

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Rolo wrote:

I thought new processes were developed that make coal more cleaner and cheaper than all of its counterparts. Or was it in refining? I read it long enough ago to completely forget about it. D'oh!

I know the Dow 15 utilities have been kickin' butt. A fund of that nature would be nice.

Pick pick! It’s country Ebonics man. Coal is burning cleaner but not perfect. EPA regulations are still a bitch to the coal burners. How would you like the EPA Gestapo looking up your stack hole every day. Scrubbers have a lot of maintenance and add cost. Plus you have the stigma and the tree huggers. Stigma and huggers will go to the way side when there are rolling blackouts. Trivia: Byproduct of the scrubbing process is............................gypsum. Gypsum makes..............drywall.

 

[pyriel]

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Where can I get some Home Depot's stocks? With Katrina's destruction, I think they are a good buy right now (short term).

 

[Guest]

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pyriel wrote:

Where can I get some Home Depot's stocks? With Katrina's destruction, I think they are a good buy right now (short term).

Yahoo estimates its price should be 49.02 in 1 year.

 

[Spaf]

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El Vis,

By the way welcome to the board!

We have 3 (3 is it) Elvis's I recall?

Anyway a few helpful things. I you get a double post, and we all do at times, you can edit it or send me a PM to deleate it.

The attachment button is working fine, now. As an alternate Wonder Woman found a site http://photobucket.com that does free imaging hosting. I use it ever so often.

Tekno and Mike found a site called http://tinyurl.com for converting large URLs that tend to breakup when posted i.e., charts at stockcharts.com

Have a good day!

Regards! Spaf

 

[ou81200]

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pyriel---

Do you have an online broker?. You can purchase Home Depot through them. Many people here have discount online brokers. I was following it. Before Katrina, I would say say that it was overbought. But now, who knows?

I think coal is going to make a comeback. I grew up and spent my young adult years in West Virginia. My father worked as a surveyor in the coal mines. It is estimated that there is 200 years of coal available there.

Technology has enabled companies to burn coal cleaner, but it is still not as clean as gas or nuclear. The EPA has to allow us to use something for energy. When was the last time a nuclear power plant was built? Most coal firing plants have been converted to natural gas, but this was when gas was cheap and readily available. Last winter there was a shortage of natural gas. The US buys NG from Canada to suppliment it's own supplies. But Canada did'nt have enough last winter to keep up with our demand. We should have seen it coming then.

Currently there are no nuclear power plants in the construction phase that I can find. Everyone frowns about having one of those in their back yard (Remember Three Mile Island). The only logical choice to me is coal plants.



Show-Me---

Thanks for the info. I'll do some more DD on Peabody Coal. I really think that coal is going to make it big .

 

[robo]

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Some comments from a Tech:

AT A GLANCE: If one pictures the market in terms of an S&P 500 trapped above the support band between 1190 and 1194.90 and below the August high at 1245.04, Friday's close was directly in the middle. Travel between the extremes should be discounted while we focus only on the possibility of potential follow-through after a breakout. For now the ball is in the bulls' court.

The work ahead of the market is very clear -- there must be a test and penetration of the August high at 1245.04. Failure to reach a new high will not just mean that the market will trade in a narrow range, it will instead lead to penetration of the 200-day moving average and a test of the support band between 1190 and 1190.90.

The small decline on Friday was enough to send the S&P back below its downtrend line drawn from the August high. It was also enough to drop it below its 50-day moving average. All that lies between the index and 1203 -- which held so well during the decline in the last two weeks -- is the neckline of the head and shoulders top.Friday, September 2nd

Now that the pre-Labor Day holiday period is behind us, there is likely to be an increase in volume. I've updated the chart below to include a green line illustrating the change in the 11-year average for the 10-day period. The pink line reflects the average of the 10-years preceding the most recent 10-day period (dark blue). I have also added a light blue line which is the average for 10 of the 11 years since 1995 (excluding 1998 during which there was a 9.9% decline including a 6.8% S&P 500 decline on August 31). Nge for 10-days before Labor Day

The S&P 500 50-day moving average is accelerating to the upside and has reached 1220.35 -- above the index at 1218.02. The average will continue to move up rapidly for the next two weeks, but in order for it to advance after that, it is necessary for the index to climb above 1230. The 200-day moving average reached 1196.03, and it will continue to climb as long as the index remains above the support band between 1190 and 1194.90.

If , in the course of the next two weeks, there is a penetration of the 1245 high, the RSI will move above 80%. I believe that so much energy will expended on the way towards that goal, 2.5% above Friday's close, that little will be left for a substantial advance above 1245 unless there is a period of consolidation after the high is penetrated. Another way for a new high to be reached is if it is accomplished slowly, over a longer period than two weeks.

I still havelong positions going into next week....We shall see if the Tech above is correct!!!! I noticed quite a few on the board took some profits....Was thinking of doing the same last week, but decided tolet it ride a few more days based on the Tech's I follow..... One in the hand most of the time, beats out two in the bush.........It should be another wild week!!!!!!

 

[Guest]

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Wall St Week Ahead -Focus on oil, growth in Katrina's

By Anupama Chandrasekaran and Megan Davies

NEW YORK, Sept 5 (Reuters) - Wall Street will focus this week on the price of oil, as investors try to come to grips with the financial cost of Hurricane Katrina and its implications for U.S. interest rates.

Economic data in the holiday-shortened week could begin to shed light on the storm's impact and give clues about whether the U.S. Federal Reserve will pause in its rate-raising cycle.

"I think we'll see a mixed week -- probably a little bit towards the upside -- but a lot depends on the price of oil," Peter Cardillo, chief market analyst and chief strategist at SW Bach and Co. said on Monday. "If oil stabilizes around here we could inch a bit higher. If it backs down to the low $60s and stabilizes, then the market might rally."

Oil prices traded in London dipped on Monday, with London Brent crude closing down $1.22 at $64.84, near levels seen before Katrina disrupted U.S. Gulf oil production and refining operations.

U.S. crude, shut for Labor Day, finished on Friday at $67.57 a barrel after peaking a week ago at a record $70.85, while October gasoline (HUV5) settled down 22.53 cents at $2.1837 per gallon on the New York Mercantile Exchange.

"Every day a refinery is opening up and that will ease some of the supply problems," said Cardillo. But oil remains well above the $58-a-barrel price Cardillo views as inflationary.

Two of eight refineries shut in Louisiana and Mississippi by Katrina were in restart on Monday.

Crude oil prices remain lofty, which has pushed gasoline prices higher, making life harder for consumers. The average national unleaded price for retail gasoline in the U.S. is $3.057 per gallon, according to travel club AAA's Web site on Monday.

"The investor will be sensitive to any signs that the sharp spike in energy prices is going to derail the consumer sector, the overall economy and corporate profit growth in the fourth quarter," said Joe Liro, market strategist at Stone & McCarthy Research Associates, last week.

While energy companies and companies involved in the reconstruction or relief efforts are expected to gain following the onslaught of Katrina, many retailers, casinos, insurers and airlines could suffer.

Despite moderate losses on Friday, stocks ended the week higher. The Dow Jones industrial average ended up 0.5 percent at 10,447, the Nasdaq Composite index rose 1 percent to 2,141 and the Standard & Poor's 500 Index gained 1.1 percent to 1,218. U.S. financial markets were closed on Monday to observe the Labor Day holiday.

GROWTH WORRIES RAISE QUESTIONS OVER FED MOVE

Meanwhile, worries that Hurricane Katrina will take a bite out of U.S. growth boosted bonds and sent the dollar to multi-month lows on Monday as markets grew more confident that U.S. interest rate rises are coming to an end.

Wall Street economists say there is a chance the Fed could temporarily halt its rate hikes. High borrowing costs are generally a negative for stocks as they increase borrowing costs for companies and consumers.

The Fed will be closely watching how long the disruption to gasoline prices lasts. But since Katrina hit the Gulf Coast last Monday, policy makers will not have a full month's data by the time of their next meeting on Sept. 20 to assess the economic fallout.

Cardillo, however, thought there could be another hike ahead.

"I don't think the Fed is going to risk inflation, and I think the economy is strong enough" even in the aftermath of Katrina, for a quarter point hike in September, he said.

Weekly data on store sales, unemployment claims and oil inventories -- which usually are not big market movers -- will take on added weight as the first signs of how the economy fared after what some say may be the largest insured loss in U.S. history.
"The two likely things influencing the market next week are the direction of energy prices and the impression that the Fed is going to stop raising rates," said Liro.

Investors will scour weekly U.S. chain store sales data on Tuesday. Weekly oil inventory data is scheduled for release on Wednesday and jobless claims data for the week ending Sept. 3 are due on Thursday.

© Reuters 2005

 

[Guest]

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Hot summer on Wall Street boosts expectations


By Joseph A. Giannone
NEW YORK, Sept 5 (Reuters) - Wall Street's dog days of summer instead turned out quite bullish, elevating expectations for the rest of this year among the biggest investment banks.

Summer is usually the slowest time of the year as brokers, traders and investment bankers flee the office for vacation.

Yet investors and deal-makers were surprisingly active in June, July and even into August, forcing analysts to raise estimates and improving prospects for the rest of the year.

"It looks like the long-awaited retail recovery is either at hand, or at least right around the corner," said Sanford Bernstein analyst Brad Hintz. "The market for IPOs has been quite good, and that's very unusual in the summertime. It sets the tone for a pretty good September."

After soaring early this year, Wall Street results fell back in the second quarter when the two largest U.S. automakers were downgraded and traders worried about hedge fund losses.

Markets improved in June and July, setting up impressive gains from the same period last year. On average analysts expect investment bank earnings to rise 21 percent from last year, when a range of worries depressed trading and deal activity from late spring through the November elections.

"We've had a good third quarter, not gangbusters, but relative to other third quarters this one has proven to be better than usual," said Sandler O'Neill & Partners analyst Jeff Harte. "We've seen the economy can grow with oil at $60 plus. There's a lot less uncertainty."

Business was surprisingly strong across the board, even in the market for initial public offerings. In August, when IPO desks usually close up shop, $39 billion of stocks were underwritten, up 47 percent from last year.

STOCKS SEEN TRENDING UP

Investment grade and junk bonds offerings slipped, but volumes proved resilient amid demand for low-rate financing. Bonds and currency trading were also busy, analysts said.

The "third quarter for the group, especially Goldman, appears to be not only an unusually strong summer, but a solid quarter for capital markets activity for any time of the year," Prudential analyst Mike Mayo said in a recent note.

Indeed there's a chance some firms will exceed their second-quarter results, when worries about hedge fund losses roiled the trading environment, depressing returns in April and May. Mergers and acquisitions volumes surged roughly 50 percent from the second quarter.

Goldman Sachs Group (GS.N and Morgan Stanley (MWD.N) , which also have large commodities trading businesses, benefited as crude oil, natural gas and gasoline prices soared.

Even individual "retail" investor activity improved nearly five years after the Internet and technology stock bubble burst. July data from online brokerages showed customer trading volume up 40 percent from a year earlier, while funds are flowing out of money markets and into the stock market.

That's important because retail investors can help support activity in other Wall Street activities, namely IPOs and asset management. Buoyant markets, moreover, encourage companies to pursue mergers and acquisitions.

A busy summer also gives Wall Street the rare opportunity to report three strong consecutive quarters, analysts said, since the fourth and first quarters seasonally are strongest.

Investors, watching industry data, have rallied behind many brokerage stocks. Goldman shares since July 1 have risen 11 percent while Lehman Brothers (LEH.N) climbed 9 percent. Shares of Morgan Stanley, which recently warned of hefty third-quarter charges, fell 2.5 percent.

Still, Wall Street stock prices on average remain below long-term averages, trading at the end of August around 12 times earnings and 1.8 times book value. Pipelines of pending IPOs and mergers point to higher revenue in months ahead.

"Given the favorable environment and likely positive comments on the earnings conference calls later this month, we believe the stocks can trend up 5 to 10 percent," UBS analyst Glenn Schorr said in a research report.

© Reuters 2005

 

[Birchtree]

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ou81200 and Show-me,

If you are thinking about coal - you should first recognize that you are way late to the party. You can still make worthwhile purchases if you have lots of dollars. BTU is selling around $71 - the yearly low was $26. I had the good fortune of recently liquidatinga coal company (CNX) Consolidated Energy at $68.90 and it has since gone up a few more points. My original purchases were made primarily under $35. I was early in the game - and I'm still holding (MEE) Massey Energy and some other energy related companies. I bought(MEE) at $23.42 - it is currently around $51. If you want to own a coal company for the long hall you should be fine getting in at these prices - they may eventually split to lower prices.

But I have another idea if you might be interested - there are going to be 225,000 new homes required for replacement due to Katrina. Currently lumber prices dropped to a fresh two-year low as late as ten days ago. Certainly not overpriced. I would look at (LPX) Louisiana Pacific, (LFB) Longview Fibre, (HBP) Huttig Building Products, just to mention a few. Yes, I'm already there. Good luck

 

[The_Technician]

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Hmm, I think G fund will up a bit tomorrow...I had to redo my home version of my tsp calculator......didn't have the verison I have at the office.....so the date could be off some, but I don't think by much.....

I'm thinking the market is going down to the 1186 soon so watch out.....that's not the bottom that I believe that will happen by mid Oct.....

All the bad things to wreck an economy are here, all there is to do is wait.....

:^

 

[ou81200]

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Birchtree---

Thanks for the info.

 

[Birchtree]

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The Technician,

You should know there is no over confidence here, I'm as nervous as a cat on a hot tin roof - but I'm going to stay with the program. There is a crises at hand and I'm not in the habit of cutting and running - it's either make it or break it time. This is how an investor makes money or gives money back.

"I'm thinking the market is going up to 1286 so watch out...that's not the top that I believe will happen by mid October....All the bad things to wreck an economy are here, all there is to do is wait....and profit"

Let the dollar drop to 84-85 - it will help the C fund companies.

Dennis - perma bull #2

 

[Show-me]

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Thanks Birch.:^

 

[coolhand]

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Hey, futures are up right now. Does that mean we'll have a spike up in the am followed by a decline in the pm? Could be a good re-entry point tomorrow.

Think I'm gonna buy the rumor that the Fed will pause. Currently 100%G.

Dennis...how's my singing?

 

[Show-me]

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I'm fix'n to wade in too.

 

[robo]

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Some comments from a Tech abouttomorrow:

Week-end Update 9-5-05

If the Globex futures hold up until tomorrow's opening (they don't always), we could have a very strong opening. This would probably follow through as a strong up-day with very positive A/D which,inturn,would give the McClellan oscillator a clean break-out into a new up trend.

If this happens, 1246, a new high, becomes a real possibility, and even beyond that to the unfulfilled target of 1254 which had been given before the correction started and which is still valid.

I'm not sure about the new high, but a shot at the 1140's this week would be nice.......

 

[teknobucks]

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optionetics....

Bullish

• The S&P500 does a very good job of climbing a wall of worry.
• 3-Day technical bottom plays out by Wednesday afternoon at key supports in the S&P500.
• Technical high-volume follow-thru confirms 3-Day low and IBD Accumulation Day.
• U.S. taps into Strategic Petroleum Reserve.
• August Employment report better-than-expected, with emphasis on upward jobs revision for July and hourly earnings data.
• Record high prices of over $70 a barrel early in week are tempered to a 2% gain of $67.57 by Friday’s close.
• Investors Intelligence reading of 51.1% plummets below bearish 55% level.

Bearish

• FOMC concern over inflationary pressures from Aug 9[suP]th[/suP] Minutes, market retests lows on release.
• Preliminary GDP reading of 3.3% versus 3.4% Wednesday.
• Chicago PMI comes in well-below estimates of 61 with reading of 49.2 and indicates weak manufacturing climate.
• Short-term extended into technical overhead with weekly market tops in place.
• CBOE Volatility Index ($VIX) consolidating breakout of three year downtrend.

Spin Factor & Mixed

• Fed Funds traders at the CBOT pricing in a 4.25% December rate, drops in confidence vote. Doing the right thing by the Fed, but is this bullish?
• GDP comes in .01% below expectations with a 3.3% figure. The strength of the economy going forward due to Katrina trumps this figure.
• ISM Index only misses estimates by 3.4 with a reading of 53.6 after very negative Chicago PMI.
• Stronger than expected Consumer Confidence is dismissed by traders on Tuesday. In light of Katrina, information is probably considered less relevant.
• Higher prices in oil are still a wild card on consumer spending and corporate earnings.
• Will Katrina lead to a positive or negative impact on the economy is still open to debate.

ON TAP FOR NEXT WEEK
The aftermath of Katrina will most likely continue to garner the economic spotlight in the holiday-abbreviated work week. For the economic watchdogs, while reports such as the Beige Book (due out late Tuesday) would normally be considered a potential market-mover, in light of the economic impact and its implications for the FOMC to ease up on its current policy, the release might be assumed to have less impact.

For earnings hounds, we are at the very end of the Q2 reporting period, but there will be a few high profile names that will release this week. One that might be considered a potential market or sector mover will be Hovnanian Enterprises (HOV). The company will report on Wednesday evening and expectations are for 1.74 EPS. The company is part of the residential / commercial building group that has recently put in a weekly chart topping pattern after being a market leader for more than five years.

Tuesday
Economic: ISM Services (61.3)
Earnings: Jos A. Bank (JOSB), Shuffle Master (SHFL), ADE Corp (ADEX), McDATA (MCDTA), Intl Displayworks (IDWK)

Wednesday
Economic: Fed’s Beige Book, Productivity Revised (2.2%)
Earnings: Albertson’s (ABS), Korn Ferry (KFY), Navistar (NAV), Comverse Tech (CMVT), Cooper Co (COO), Hovnanian (HOV), Take-Two (TTWO), Ulticom (ULCM), Verint (VRNT)

Thursday
Economic: Initial Claims (315K), Wholesale Inventories (.7%), Consumer Credit ($10.0B)
Earnings: Sears Holdings (SHLD), Barr Pharma (BRL), UTI Worldwide (UTIW), Martek (MATK), Quicksilver (ZQK), Open Text (OTEX), Molex (MOLX)

Friday:
Economic: Export & Import Prices
Earnings: NA

 

[teknobucks]

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Fed May See Katrina Inflation Risks Outweighing Slowdown Fears

Sept. 6 (Bloomberg) -- The Federal Reserve is likely to conclude that Hurricane Katrina poses more risk of inflation than of an economic slowdown, and probably will raise rates on Sept. 20 while signaling it may pause later if there are lingering effects on growth and hiring.

``If you look at the record at how the U.S. has weathered shocks, we have a very, very resilient economy,'' Harvey Rosenblum, director of research at the Fed Bank of Dallas, said in an interview. Fed policy makers are likely to weigh their response to Katrina against how strong the economy was before the storm. ``Initial conditions matter,'' he said.

Current and former Fed officials also are stressing odds that any slowdown will be temporary, and emphasizing their reputations for keeping inflation at bay. Together, the comments suggest policy makers aren't convinced they need to stop raising rates, even if their Sept. 20 statement is reworded to give them more room to pause later if data warrants.

``From 1994 and on, we have managed to convince markets we are capable and willing to do what it takes to prevent inflation from getting out of control,'' Richmond Fed Bank President Jeffrey Lacker said in an interview. The Fed's credibility helped keep Americans' price concerns anchored even as gasoline costs jumped 38 percent in the year's first half, he said.

Neither Rosenblum nor Lacker, who is a nonvoting member of the Federal Open Market Committee this year, would offer predictions on the path of interest rates. Anthony Santomero, a voting member and Lacker's counterpart at the Fed Bank of Philadelphia, said in a speech after the storm that he expects the Fed to keep raising rates at a so-called measured pace.

More to Say

Fed Bank of Chicago President Michael Moskow of Chicago will comment on the economy in a speech scheduled for tomorrow in Chicago at noon local time. San Francisco Fed President Janet Yellen of San Francisco will speak on the economy the next day.

Investors changed bets about the path of interest rates after Katrina struck, predicting Fed officials will stop raising the nation's benchmark rate after the Sept. 20 meeting, the first of three left this year.

The FOMC raised the overnight bank lending rate 10 times since June 2004, to 3.5 percent, in an effort to head off faster inflation. Before the storm, forecasters in a Bloomberg News survey unanimously predicted another rate increase on Sept. 20; now 12 of 77 expect no change.

The FOMC was already concerned about ``greater near-term momentum'' in the economy, resulting in ``elevated inflation pressures,'' according to minutes of their last meeting, held Aug. 9. Katrina struck 20 days later, and the average U.S. pump price for gasoline rose more than a half-dollar to a record $3.057 a gallon on Sept. 2, the AAA, the nation's largest motoring organization, reported.

Refinery Damage

U.S. consumers are likely to pay $3 a gallon or more for gasoline for at least ``the next six to eight weeks'' because of refinery damage, Ben Bernanke, President George W. Bush's chief economic adviser, said Sept. 1.

The debate around the Fed's boardroom table on Sept. 20 is likely to focus on the duration of disruptions to U.S. ports, logistics and energy supplies, rather than on the possibility of significant impairment to growth.

Louisiana and Mississippi account for around 2 percent of U.S. output. About 30 percent of U.S. oil production comes from off-shore platforms in the Gulf. About 7 percent of the nation's refining capacity is still off line a week after the storm, according to the U.S. Minerals and Mining Service.

Meeting With Greenspan

Bush and Treasury Secretary John Snow both said they met with Fed Chairman Alan Greenspan last week and that he shares a view that economic disruption may be temporary. Greenspan hasn't spoken publicly since the storm.

While Katrina ``does seem to be at the large end of the scale of disasters we have seen,'' the economic impact is ``very localized geographically'' aside from the spike in gasoline prices caused by pipeline and refining disruptions, Lacker said.

A pause in the rate cycle will at least be discussed at the September meeting, said Brian Sack, a senior economist at Macroeconomic Advisers LLC and former head of monetary and financial markets analysis for the Fed Board of Governors.

``This is very much a developing story,'' Sack said in an interview. ``It is hard for any Fed official to say how temporary the effects are going to be.''

`Significant Commentary'

The FOMC is likely to add ``significant commentary'' about the near-term outlook in its statement and signal that future policy discussions will give added weight to new data, former Fed Governor Susan Phillips said in an interview. Around the start of the Iraq War in March 2003, the committee pledged ``heightened surveillance'' of data and regional anecdotes.

``All of those Fed presidents'' will be dialing business contacts and ``come in with their stories,'' said Phillips, now dean of the George Washington University School of Business in Washington. ``The Fed does need to have rates higher. The question is: At what pace do you do it?''

At a minimum, rising fuel costs and supply disruptions from the hurricane ``makes the economy more vulnerable to other shocks,'' said Rosenblum, the Dallas Fed researcher. ``You have an economy that has no tail winds from monetary policy,'' and so ``other shocks can depress demand.''

U.S. Secretary of Labor Elaine Chao said weekly jobless claims are likely to rise for ``several weeks'' from a weekly average of 317,000 applications over the past month. As far as the national impact of the hurricane, ``it's a little bit early to say,'' Chao said in a Sept. 3 interview.

Trimmed Forecasts

Economists at Lehman Brothers Inc. and Bear Stearns & Co. trimmed their forecasts for third-quarter output, while maintaining the view that the U.S. central bank will raise rates over the final three policy meetings of the year.

``We need to remember the Fed's job is not only to manage growth in the economy,'' Lehman Chief Economist Ethan Harris said in an interview. ``They also have to keep an eye on the inflation picture. They can't just step aside if they see a major inflation shock coming out of this episode.''

The consumer price index rose 3.2 percent for the 12 months ending July. One measure of inflation expectations, derived from yield differences on U.S. Treasury 10-year notes and government inflation-protected securities of similar maturity, show traders in the second quarter expected prices to rise 2.48 percent, down from an average of 2.59 percent annual rate in the first quarter.

A Larger Bulge

``We think the cost of a pause would be a larger bulge in inflation,'' John Ryding, chief economist at Bear Stearns in New York, said in a note to clients.

Lacker said the current surge in energy costs won't trigger ``threshold effects,'' where total spending begins to contract. Retail sales rose 1.8 percent in July and 1.7 percent in June, the largest back-to-back gains since 1993, even as the average price of gasoline rose 15 percent in the same period.

Consumers are more focused on their income prospects than on inflation and ``that is the predominant determinant to their spending,'' he said.

The economy slowed to a 3.3 percent annual rate of growth in the second quarter from 3.8 percent in the first quarter. Prior to the hurricane, both private economists and the Fed board's staff expected the economy to pick up speed, with a Bloomberg survey completed Aug. 8 showing a median estimate of 4.1 percent growth in the third quarter.

Lehman's Forecasts

Lehman dropped its forecast for third quarter growth to a 3.8 percent annual rate from 4.5 percent, and increased its year- end forecast for the consumer price index by 0.8 percentage points to 4.1 percent. Bear Stearns cut its third-quarter growth forecast to 3.5 percent from 4.5 percent.

With so much in flux, there will be greater scrutiny of Fed officials' statements, such as those of Moskow and Yellen, between now and Sept. 20. Fed officials traditionally stop speaking in public a week before a policy meeting.

``There is a lot more uncertainty in forecasting both the economy and the Fed right now,'' economist Harris said. ``The economy should be in reasonable shape and the Fed, which was in a very hawkish mood going into this period, probably just continues hiking rates.''