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Analysts: A Rate Cut's Coming – But When?

Now that economists have had a chance to absorb today’s core CPI numbers, predictions abound as to how the Federal Reserve will react in 2007. Bill Griffeth quizzed two analysts during “Power Lunch.” They seem to agree a rate cut is coming – it’s just a question of when.

It’s going to take more than just one report to convince the Fed, says David Resler. He’s the chief economist at Nomura Securities. He doesn’t see any rate cuts until late in the second quarter. And they won’t come at all unless the core Personal Consumption Expenditures – which the Fed watches even more closely than CPI – is at 2% or lower, he says.

Jason Schenker, an economist at Wachovia, is a bit more bullish. While labor costs are still a concern for the Fed, he’s betting the overall economic slowdown this quarter and the next will push the unemployment rate up. That should take the pressure off wages. Schenker predicts two cuts in the first half of 2007.

Nomura’s Resler is hoping the Fed will use what he sees as a coming decline in inflation to get rates back down below 5%.