Friendly interest rates are keeping Americans in a borrowing mode.

Thanks to houses that function as piggy banks, consumers worry less than ever about stacking up debts to the ceiling, the roof and beyond.

Got a huge credit-card balance? Simply phone your friendly mortgage lender and get a cash-out refinance.

It’s a system that has been in place for years, and nothing seems able to stop it. Nothing, that is, except a Federal Reserve determined to boost lending rates.

While the cheap money continues to roll, Americans show few signs of slaking their thirst to spend. Which brings us to Thursday’s report of April retail sales.

Chicago economist Brian Wesbury is looking for it to show a relatively meek gain of 0.2 percent, partly because Easter was early.

“Sales were up 1.8 percent in March, reflecting some sales that were stolen by an early holiday, as well as a bulge in activity at home improvement stores,” said Wesbury, of Griffin, Kubik, Stephens & Thompson, an investment firm.

On a year-over-year basis, he said, sales last month were up a robust 4.4 percent, and are on track for 6 percent or 7 percent year-over-year gains for the remaining months of 2004.

“The economy has reached a point of sustainable recovery, with enough momentum to create new hiring and fresh income,” he said. “That translates into additional spending at retail.”

Two reports in coming days will give members of the Fed a clearer idea about whether a recent run-up in prices should create concerns about inflation.

For March, both the producer price index and the consumer price index rose by an unexpectedly sharp 0.5 percent.

Chicago economist Carl Tannenbaum says such numbers cause central bankers to take notice, adding, “members of the Fed realize that they can’t relax.”

For now, he sees less severe gains in both numbers, with consumer prices rising by 0.3 percent for April. If food and energy are stripped out, the increase would be about 0.2 percent.

“One favorable sign is that there is a moderation in prices for steel and other metals because supply is rising,” said Tannenbaum, of LaSalle Banks. “Factories are roaring, and we won’t see a loss of productivity or profits because of supply shortages.”

For consumers, Tannenbaum says one area of concern remains food prices, “which have been under quite a bit of pressure.”

Although experts have counseled that a weaker dollar would lessen the staggering trade deficit, the numbers keep telling a different tale. As the economy rebounds, Americans build up a growing yen for items made overseas. The weakened greenback has had little effect.

Economists are expecting Wednesday’s report for March to show a gap of around $43 billion, a bit worse than February’s $42.1 billion. Some are looking for a record level above $44 billion.

Worries about interest rates have held the stock market in check for months. Investors also harbor a gloomy awareness that corporate profits, while remaining strong, are unlikely to repeat the 27 percent year-over-year gains they achieved in this year’s first quarter. Adding to Wall Street’s concerns: oil prices topping $40 a barrel.

Bannockburn, Ill.-based mutual fund manager Henry Van der Eb says investors should favor bonds over stocks, because any move to raise interest rates “will cause the economy to slow a lot more quickly than in any other cycle since World War II.”

Consumers, who are heavily laden with debts, are vulnerable, he says, and would crimp their spending were rates to rise only slightly. At the same time, the effect of tax cuts will wear off.

“The Fed is in a box of its own making. Policy-makers are aware that the situation involves terrible medium- and long-term risks,” said Van der Eb, of the Gabelli Mathers Fund.

He said if the yield on long-term government debt hits 5 percent, “investors should acquire bonds. We are headed toward a significant slowdown within the next six months.”

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(c) 2004, Chicago Tribune.

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Distributed by Knight Ridder/Tribune Information Services.

AP-NY-05-07-04 1829EDT