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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Les H who wrote (40595)	2/18/2000 8:57:00 AM
From: Les H	Read Replies (1) \| Respond to of 99985

FOCUS-Wall Street eyes faster rate hikes by Fed NEW YORK, Feb 17 (Reuters) - Taking Federal Reserve Chairman Alan Greenspan at his word, Wall Street's primary dealers forecast on Thursday the central bank will hasten its tightening pace, pushing up its key short-term rate at least half a percentage point by summer. ``Greenspan opened the door to more rate hikes today,' said Dresdner Kleinwort Benson economist Kevin Logan after the Fed chief described the state of U.S. economy and monetary policy to the U.S. House Banking Committee. Of the 30 primary dealers who work directly with the Fed in the money markets, all 29 responding to a Reuters poll after Greenspan's testimony forecast the Fed would lift its federal funds rate to 6.0 percent on March 21. Two-thirds expected the fed funds rate to reach at least 6.25 percent by the end of June. Eighteen called for 6.25 percent by mid-year, while an additional four said a 6.50 percent rate is possible. On Feb. 2, when the same group of economists was last polled, 26 out of the 30 forecast a 25 basis point March rate hike and only 15 out of 30 expected a rate of 6.25 percent by the end of the first half. Some changed their forecast after Feb. 4, when the Labor Department said 387,000 new jobs were added in the nonfarm sector while unemployment rate fell to 4 percent. One of the 30 was not available for comment on Thursday. The Federal Reserve has raised rates four times since June, 1999 in order to help prevent the economy from overheating. But with construction still booming and labor markets still tightening, economists agreed that recent rate hikes may not have been enough to keep inflationary pressures in check. In fact J.P. Morgan Securities is calling for the funds rate to be lifted by 50 basis points, or half a percentage point, in March. Others agreed that is in the cards now. ``The odds of a 50-basis-point tightening (in March) are definitely higher now,' said Warburg Dillon Read economist Patrick Dimick who expects the Fed to push up rates by at least three-quarters of a point before year-end. Greenspan's shift from his usual very balanced statements to a much more blunt tone, struck economists. This time Greenspan takes a ``good story, growing productivity, and puts a bad spin on it,' said Merrill Lynch economist Stan Shipley. For example, Greenspan said: ``Yet those profoundly beneficial forces driving the American economy to competitive excellence are also engendering a set of imbalances that, unless contained, threaten our continuing prosperity.' Usually Greenspan hedges such warnings with other, more benign comments. But because he did less of this today, banks were rethinking their forecasts. ``We expect 25 basis points in March, but we are debating about what happens at the next meeting in May,' said Chase Securities economist Bill Sharp. The forecast may clear in late March, after the government releases the next set of consumer price statistics, economists agreed. ``That could be an ugly number where we could get higher-than-trend inflation' because energy prices will have kicked in, Dresdner's Logan said. Since Greenspan opened the door for more rate hikes on Thursday, ``that number could give them the cover the need to move more quickly,' he said. The poll also showed that 15 of the 29 primary dealers forecast fed funds at 6.25 percent by the end of 2000, and six dealers look for a 6.50 percent rate. Bond and stock markets, both falling, seemed to reflect investors nervousness about the chance for a rate hike. But the dollar rose, perhaps because higher rates often attract fresh capital and therefore boost the currency.