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Fed to downgrade expectations?

The U.S. Federal Reserve Building in Washington, D.C.

TEXT OF INTERVIEW

Steve Chiotakis: Retail sales fell by half a percent in June. That's worse than expected, and a second straight month of declines. And in another Commerce Department report out today, we found out U.S. business inventories rose less than expected in May. Analysts say merchants may be avoiding the build-up of stock if they think demand is going to slow down. That kind of lackluster news plays into the Federal Reserve's worry that the economy isn't growing as much as it should.

Jon Hilsenrath broke the story this morning for the Wall Street Journal. He's chief economics correspondent for the paper. He's with us live from Washington. Hi Jon.

Jon Hilsenrath: Hi there. Thanks for having me on.

Chiotakis:You got it. What are the rumblings coming from the Fed?

Hilsenrath: We're going to be getting minutes this afternoon from the Fed's last meeting in late June. And what we're going to learn in those minutes is that they've downgraded their forecast for economic growth in the second half of the year and into 2011. And if they started a debate, you know, they spent most of the beginning of this year talking about how to exit from their raising money policies. Now they're starting to wonder, "Maybe we should be doing more."

Chiotakis: A lot of the Board is seeing the same information, right? I mean, is this a matter of interpretation?

Hilsenrath:Well, there's disagreements at the Board about what they're seeing, and about what they should do. There are people at the Fed who worry a lot about inflation and then there are people at the Fed who worry about deflation. The ones who worryaboutu deflation, which isfallingn prices, are starting to think "maybe we should be doing more." But there's disagreements there too, not only on whether they should, but on how effective it would be. There's not a lot theycouldl do. Interest rates are already near zero. Last year, they went out and bought more than a trillion dollarswortht of mortgage bonds and Treasury debt, and they could do more of that. But there's disagreements among these Fed officials about how effective that would be. Interest rates are already pretty low. There's not much farther they can pus them down.

Chiotakis: Wall Street Journal's John Hilsenrath with us from Washington. Jon, thanks.

Hilsenrath: OK.

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