An unexpected rise in housing starts and a more moderate increase in wholesale prices offered some brighter economic news on Tuesday as the Federal Open Market Committee gathered for its scheduled two-day meeting.
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Economists expect that the Fed, in a statement to be released Wednesday afternoon, will restate its expectation that low interest rates will continue. It is also expected to recommit itself to the programs to loosen credit markets and restore confidence in lending.
The Fed has already lowered interest rates to nearly zero and expanded its balance sheet as it tries to stem the pain of the financial crisis. Analysts expect the Fed to leave the target rate unchanged at the range of 0 to 0.25 percent.
It has flirted with the idea of buying up long-term Treasury debt to help lower mortgage rates, but economists said the Fed was unlikely to take that step at this point. “This is like the last major arrow in their quiver,” said Steven Ricchiuto, chief economist at Mizuho Securities. “It’s a very simple, easy thing to do. And you might want to hold off until you really need it.”
On Tuesday morning, the government offered some positive reports on the health of the sagging economy.
Construction of new homes rose by an unexpected 22.2 percent in February from a month earlier, the Commerce Department reported, largely because of an increase in condominium construction. Housing starts over all rose to an annual pace of 583,000, and construction starts for single-family homes rose slightly from January.
“Many are interpreting the February data on starts and permits as signs that a bottom is forming in the housing market,” Richard F. Moody, chief economist at Forward Capital, said in a note to investors. “This is more a case of wishful thinking than a reflection of reality.”
Despite the monthly gains, housing starts in February were down 47.3 from a year earlier, reflecting how homebuilders halted new projects as lending dried up and demand for housing dwindled.
The government also reported that wholesale prices in the United States edged up slightly in February, but flatter energy prices and the continuing economic downturn kept price increases minimal.
The Labor Department reported that its Producer Price Index rose by a less-than-expected 0.1 percent last month compared with January. The so-called core index, which excludes volatile food and energy costs, rose 0.2 percent, slightly more than economists had expected.
It was the second consecutive month of increases in producer prices. The 0.1 percent gain, after the 0.8 percent leap in January, could help ease policy makers’ fears about the downward spiral of lower prices, lower wages and economic stagnation known as deflation.
Still, economists said that price weakness farther down the line of production presaged more declines in what producers received for finished goods, and what consumers paid at the cash register.
“We’re seeing some big declines in things like synthetic fibers, lumber, phosphates, organic chemicals — the things that are used to make these products are decreasing,” Anika Khan, an economist at Wachovia, said.
Analysts said that those weaknesses suggested that deflation would remain a concern — if not a cause for panic — as the economy continued to contract.
The price of intermediate goods excluding food and energy fell 0.6 percent in February, the fifth month of declines, and economists said prices for raw goods had collapsed since last year.
For the year, producer prices were down 1.3 percent from last February, their sharpest decline of the last three months.
The modest increase in producer prices in February was largely the result of a slower rise in energy and gasoline prices. Energy prices, which rose 3.7 percent in January, were up 1.3 percent last month, and gasoline prices were up 8.7 percent in February compared with a 15 percent jump in January.
Food prices were also sharply lower, falling 1.6 percent in February from the previous month on lower costs for things like eggs, vegetables, fresh fruits, dairy products and cooking oil.
