Will it or won’t it? Only a few weeks ago, it seemed there was little doubt the Federal Reserve Board would raise rates when the Federal Open Market Committee gathers on Tuesday.

But after Friday’s much worse-than-expected employment numbers in the U.S., many economists were backing off earlier declarations that the Fed would hike rates.

At the very least, economists now say the Fed may be forced to reconsider a steady diet of quarter-point increases expected for the rest of 2004. The guessing is that Fed chairman Allan Greenspan will take a break at one of the three meetings this fall.

“Look for markets to continue to back away from expectations that the Fed will be in any hurry to hike rates,” said Allan Seychuk, economist with RBC Financial Group. “With the August 10 Fed meeting just around the corner, markets will add July’s weak job gains to the string of weaker-than-expected June statistics and likely conclude a 25-basis point rate hike is not such a sure thing. The Fed may be content to stand pat.”

Tuesday’s FOMC meeting will be the most-watched item this week. But other reports will be worth noting for what they suggest about the inflation outlook south of the border — in particular, unit labour costs on Tuesday and July producer prices on Friday.

Other U.S. releases include June wholesale trade on Monday; Q2 productivity on Tuesday; July retail sales, June business inventories and weekly unemployment claims on Thursday; and June international trade and preliminary August consumer sentiment on Friday.

“Retail sales and consumer sentiment will also be closely watched, though these are less important because we already expect consumer spending to moderate in the second half of the year to a more measured growth rate, and weekly chain store sales indicators suggest this is unfolding nicely,” said Seychuk.

In Canada, most eyes will be on June’s merchandise trade data, due out Friday. Most expect the surplus will widen to $5.7 billion mostly on the weakness in imports. Also on tap are June building permits on Monday, July housing starts and June new house prices on Tuesday and a host of indicators on Friday including June’s trade and June manufacturing shipments.

“The data for June complete what looks to have been a healthy 4%+ quarter for GDP. After brisk gains, the various reports [next] week are likely to see a cooling, with both housing and factory shipments coming off the boil,” said CIBC World Markets senior economist Avery Shenfeld. “Although the trade surplus is likely to widen, that will be on softness in imports rather than momentum in exports. The data could feed into expectations for the Bank of Canada to defer rate hikes until the fourth quarter.”

As to the Fed’s next move, Shenfeld believes the U.S. payroll data has thrown up “a big question mark,” although he is still leaning toward a quarter-point increase next week.

“A Fed hike has to be accompanied by a confident statement on growth, but we expect at least a verbal nod to recent uncertainties, and a reminder than inflation is for now a balanced risk,” he says.

The disappointing job report for Canada also calls into question whether the Bank of Canada will raise its trend-setting rate next month. Some economists feel the rate hike may now be deferred until October.

Craig Alexander, senior economist with TB Bank Financial Group, said it’s a close to call for either central bank.

“We feel that both employment reports understate the true robustness of the Canadian and U.S. economies, implying that the Fed should raise rates next Tuesday and that the Bank should pull the trigger in September,” Alexander says. “But, what they will do are now very close calls.”