Bet on rate hikes in August

Bob Moon Jun 15, 2006


MARK AUSTIN THOMAS: The government’s latest inflation figures just about removed any doubt that interest rates will be going higher in a couple of weeks. Wall Street seemed to come to terms with that yesterday and stocks rallied just before the close. Still, as Marketplace’s Bob Moon tells us, it doesn’t take investors long to find something new to worry about.

BOB MOON: Yesterday’s late-session rally for the Dow may reflect nothing more than Wall Street finally accepting the prospect of another interest rate increase when the Federal Reserve meets at the end of this month.

But market watchers point out there have been other rallies recently that led nowhere, and Robert Brusca of Fact and Opinion Economics says it’s too early for investors to start unfastening their seat belts.

ROBERT BRUSCA: I think the stock market is still in a little bit of trouble. I’d say this is an ongoing correction for equities. Let’s not expect the markets just to all of a sudden decide that raising interest rates is good — they won’t.

Brusca suggests investors will quickly be looking beyond this month’s Fed meeting, and fretting over what might come next:

BRUSCA: Certainly the way inflation has been rising, another rate hike even in August, after June, right now seems likely.

Indeed, investors in interest rate futures contracts are now betting that the Fed will raise rates in August.

In New York, I’m Bob Moon for Marketplace.

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