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THE FIRST NATIONAL BANK OF CHICAGO

One First National Plaza, Chicago, Illinois

(August 8, 1997) FINANCIAL INSTRUMENTS: INTEREST RATE OUTLOOK–The best bet is that the Fed has shifted away from its preemptive strategy on inflation, and will remain on the sidelines for the balance of the year. It would take either a rise in inflation or a rapid acceleration in growth to prompt a tightening in this environment. The federal funds rate is expected to hold at 5½% through year-end.

Bond rates moved lower on signs of a moderation in growth earlier this summer. Bond yields could return to those levels on signs of production weakness. The risk is, however, that a rebound in retail spending will spook financial markets. A pickup in economic growth by year-end is expected to push the yield on the 30-year bond back into the neighborhood of 6¾%.

Consensus National Futures and Financial On Line Index
Financial Index

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