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Pastimes : The Justa & Lars Honors Bob Brinker Investment Club -- Ignore unavailable to you. Want to Upgrade?

To: Justa Werkenstiff who wrote (7338)	7/30/1999 9:47:00 PM
From: Justa Werkenstiff	Read Replies (1) \| Respond to of 15132

Interest Rates Going Up!! Here is the consensus: POLL--More Wall St. firms see Fed rate hike soon By Philip Shishkin NEW YORK (Reuters) - After the government reported Thursday that labor costs in the second quarter surged by the fastest rate in eight years, two more Wall Street firms joined the majority expecting the Federal Reserve to raise rates again this year. Twenty-two out of 30 U.S. primary dealers -- the brokerage firms that take part in Treasury auctions and open-market operations with the New York Fed -- now expect the Fed to raise rates again soon. That's up from 20 out of 30 a day earlier, after Fed Chairman Alan Greenspan completed his mid-year assessment of the U.S. economy. Sparking the change was a surprising surge in the Labor Department's Employment Cost Index (ECI). The index measuring wages, salaries, benefits and other compensations rose 1.1 percent in the second quarter. It was the strongest gain in the index since 1991 and much stronger than the 0.8 increase Wall Street had expected. Stock and bond prices fell sharply after the report, and the struggling dollar fell further, as fears of a near-term Fed rate hike gripped Wall Street. Separately, the Commerce Department reported that gross domestic product (GDP) rose 2.3 percent in the second quarter, its weakest performance since an 1.8-percent growth rate in the same quarter last year. But as the economy slowed down, the GDP price index rose 1.6 percent in the second quarter, versus 1.0 percent in 1998. Both the GDP price index and the ECI are seen as signs that inflation pressures can be building in the U.S. economy. During his recent testimony to Congress, Greenspan pledged the Fed would take prompt action to stem any inflation pressures it sees. His comments came after the Fed raised the benchmark federal funds rate for overnight inter-bank lending to 5.0 percent from 4.75 percent at its last policy meeting on June 30. THE REUTERS POLL Reuters polled on Thursday the 30 U.S. primary dealers about their forecasts for the U.S. overnight interbank lending rate through year-end. The Reuters poll showed: Twenty-two firms expected the FOMC to raise the funds rate by a quarter-point to 5.25 percent at least once. On Wednesday, just 20 firms expected such a hike. Out of 22 firms expecting a hike, nine said the FOMC will likely raise rates when the panel convenes on Aug. 24, rather than Oct.5. Two firms anticipated two quarter-point hikes -- the first on Aug. 24 and the second on Oct. 5 -- that would bring the funds rate to 5.5 percent. This would fully reverse the three funds rate cuts the Fed implemented between Sept. 30 and Nov. 17, 1998, to help resolve the global financial crisis. Eight firms thought the Fed will not raise rates again this year, down from 10 firms which held this view on Wednesday. THE RATIONALE BEHIND THE FORECASTS Steve Gallagher, chief economist at SG Cowen Securities, switched his forecast from no-change on Wednesday to one quarter-point hike in October. ''To me, everything in the GDP report argued against the rate hike. But the ECI is what Greenspan has been highlighting. That type of news just pushed them,'' he added. Those forecasting steady rates were encouraged by evidence of slower economic growth contained in the GDP figures and expected further moderation later this year. ''The markets react to headline numbers,'' said Chase Securities Inc. economist Jim Glassman, who backed away from his earlier forecast of a quarter-point rate hike on Wednesday and no longer expects tighter credit. ''If you look past the numbers, in particularly that number that bothered everyone, that ECI number, it's definitely not what it seems. We think the markets looked at the wrong thing,'' Gasman also said. Those firms that switched their forecasts from an October raise to an August raise said that the economic data released on Thursday carried enough momentum to push the Fed to act quickly. ''Their trigger finger is inclined to do something sooner rather than later, and the headline number (ECI) gave them the ammunition to do it,'' said David Greenlaw, a senior economist at Morgan Stanley and Co. ''The overall tone of the report is not overly worrisome but it's tipping the scales more toward the August timeframe.'' FUNDS RATE FORECASTS THROUGH THE END OF 1999 Primary Funds rate FOMC Fed Funds Dealer change meeting year-end ABN AMRO no change -- 5.00 pct Aubrey Lans up 25 bps August 5.25 pct BancAmerica up 25 bps October 5.25 pct Banc One up 25 bps October 5.25 pct Barclays up 25 bps August 5.25 pct Bear Stearns no change -- 5.00 pct Chase Secs no change -- 5.00 pct CIBC Opp up 25 bps October 5.25 pct CS 1st Bstn up 25 bps August 5.25 pct Daiwa up 25 bps October 5.25 pct DeutscheBk up 50 bps Aug AND Oct 5.50 pct DLJ Secs up 25 bps October 5.25 pct Dresdner up 25 bps August 5.25 pct Fuji Secs no change -- 5.00 pct Goldman, S up 25 bps October 5.25 pct Greenwich up 25 bps October 5.25 pct HSBC Secs up 25 bps August 5.25 pct J.P. Morgan up 25 bps October 5.25 pct Lehman Bros no change -- 5.00 pct Merrill no change -- 5.00 pct Morgan Stan up 25 bps August 5.25 pct Nesbitt Brns up 50 bps Aug AND Oct 5.50 pct Nomura up 25 bps October 5.25 pct PaineWebber no change -- 5.00 pct Paribas up 25 bps October 5.25 pct Prudential no change -- 5.00 pct SG Cowen up 25 bps October 5.25 pct Salomon up 25 bps Aug or Oct 5.25 pct Warburg up 25 bps October 5.25 pct Zions Bank up 25 bps August 5.25 pct