NEW YORK, Feb 27 (Reuter) - The hawkish tone to Federal
Reserve chairman Alan Greenspan's Humphrey Hawkins testimony
raised the odds of a tightening in March, but a move in May is
more likely, said economists at the U.S. primary dealerships.
Of 35 economists who responded to a Reuters survey of
dealers, five forecast a rate hike at the March 25 Federal
Open Market Committee (FOMC) meeting, while another six put
the chance of a tightening at 50-50. Twenty-four said the Fed
would not tighten in March, although many of those were not
very comfortable with their forecasts at this time.
Two of the 37 primary dealers (BZW Securities and SBC
Warburg) did not participate in the survey.
The last time the Fed altered rates was in January, 1996,
when it lowered the federal funds rate by 25 basis points.
Greenspan's remarks on Wednesday before the Senate Banking
Committee "raised the odds somewhat, but the odds still remain
less than 50 percent," said Anthony Karydakis, senior
financial economist at First Chicago Capital Markets Inc,
adding that the Fed will more likely raise rates at its
subsequent meeting on May 20. "He reminded people how close
they (the FOMC) are to beginning the tightening process."
Greenspan said that while prospects in the economy are
"favorable," risks to future inflation pressures --
particularly wages -- have increased, and warned the Fed won't
be afraid to make a pre-emptive strike to keep inflation at
bay. His remarks echoed what he and other Fed officials have
been saying since last summer.
Still, most economists said it is too early to make a
definitive call for a meeting a month away, noting the Fed
still needs to see the February employment report, as well as
February data on retail sales, consumer prices and
manufacturing activity.
"In a week from now, the odds (of a rate hike) will be
closer to 80 percent or closer to 30 percent," said David
Resler, chief economist at Nomura Securities International
Inc.
Should the Fed remain on the sidelines in March, a May
rate hike looks more likely, economists said. The Reuters poll
found that 25 economists forecast a rate hike by the May FOMC
meeting, while two more expected the first rate increase
sometime in the second half of the year.
The results differed somewhat from the survey just after
February 4-5 FOMC meeting, where at the time only 16
economists (out of 31 polled) predicted a rate hike by May.
The other 15 had figured the Fed would tighten in the second
half of the year or not at all in 1997.
In the current survey, six economists did not project a
move in 1997, while one called for a rate cut this year.
Further, 24 of the 35 economists forecast a federal funds rate
above 5.50 percent by year end, with 20 of those predicting
5.75 percent or higher.
"Once the Fed gets started, they will realize that 25 or
50 basis points isn't going to cut it," said John Youngdahl,
money market economist at Goldman Sachs & Co, adding that he
sees the funds rate at 6.50 percent by year end. He said given
the momentum this late in the business cycle, strong restraint
is required.
Others, though, said not much has changed since the Fed
left rates alone earlier this month, and that Greenspan's
testimony was nothing more than a rehash of the minutes from
the December FOMC meeting.
Yet, "he was more explicit in the linkage between the
imbalances in financial markets and the larger economy," noted
Robert DiClemente, senior economist at Salomon Bros. "He was
telling you again that a tightening is coming...He doesn't
want a bloodbath" in the financial markets.
Full results of the survey follow:
Participant Mar 25 Next Direction Basis End '97
Move? Move Points FF Rate
BA Securities No May tighten 25 6.00
Bankers Trust No May tighten 25 5.75
Bear Stearns No Q3/Q4 tighten 25 5.50
Chase Securities No May tighten 25 5.75
CIBC Wood Gundy No May tighten 25 5.75
Citicorp No Q3 '97 ease 25 4.75
CS First Boston No No move -- -- 5.25
in '97
Daiwa No July tighten 25 5.75
Dean Witter No May tighten 25 5.75
Deutsche MG Yes Mar 25 tighten 25 6.00
Dillon, Read Maybe Mar/May tighten 25 5.75
DLJ Securities No No move -- -- --
in March
Eastbridge Capital No May tighten 25 5.75
First Chicago No May tighten 25 5.75
Fuji No May? tighten 25 5.75
Goldman Sachs Maybe Mar/May tighten 25 6.50
Greenwich Capital Maybe Mar/May tighten 25 5.75
HSBC No No move -- -- 5.25
in '97
Lanston, Aubrey Maybe Mar 25 tighten 25 6.00
Lehman No No move -- -- 5.25
in '97
Merrill Lynch No May tighten 25 5.75
Morgan Stanley Yes Mar 25 tighten 25 6.50
J.P. Morgan Yes Mar 25 tighten 25 6.00
NationsBanc No No move -- -- 5.25
in '97
Nesbitt Burns Yes Mar 25 tighten 25 5.75
Nikko Securities No May tighten 50 6.25
Nomura Yes Mar 25 tighten 25 5.50
PaineWebber No No move -- -- 5.25
in '97
Prudential Maybe Mar/May tighten 25 --
Salomon No Q2 '97 tighten 25 5.75
Sanwa No May tighten 25 5.50
Smith Barney No No move -- -- 5.25
in '97
UBS Securities No May tighten 25 5.50
Yamaichi Maybe Mar/May tighten 25 6.00
Zions No May tighten 25 6.00
((-- N.A. Treasury Desk, 212-859-1867)) |
