Newspaper article THE JOURNAL RECORD

Analysts Foresee Little Change Coming Soon from the Fed

Newspaper article THE JOURNAL RECORD

Analysts Foresee Little Change Coming Soon from the Fed

Article excerpt

NEW YORK (Bloomberg) -- The Federal Reserve is unlikely to change course on interest rates anytime soon, in large part because the economy is expanding with little inflation, say market investors and traders.

The Fed has spent the last 11 months navigating the economy between recession and boom -- without raising or lowering rates at all. Higher bond yields, and borrowing rates, helped slow the economy earlier this year and lower yields now may revive growth.

Now market conditions are pointing to steady rates through spring. "The Fed has got to be the happiest group of people on the planet -- they haven't had to do anything," said Keith Anderson, who helps manage $45 billion at New York-based BlackRock Financial Management. If the success of a central bank comes not in action but in restraint, the Federal Reserve ought to be considered a smash this year. Its last move came in January, when it lowered the federal funds rate by a quarter percentage point to 5.25 percent, where it's been stuck ever since. The central bank passed up another chance to change the fed funds rate, or rate banks charge each other for overnight loans, at its meeting last week. It may take no action for another three months, judging by yields and rates on securities in the bond market. Investors say it's unclear whether the Fed's next move is to raise rates or lower them. "The conventional wisdom says their next move will be a rate increase," said Anderson. "I think they'll be able to do nothing and in the middle of 1997 lower rates, though I'm not counting on it." Expectations for rates are reflected in the implied rates of Eurodollar futures contracts, or dollars on deposit outside the country. The securities are among the most sensitive to expectations for the Fed's interest-rates changes and right now, they're pointing to steady rates for at least the next three months. …

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