The Federal Reserve raised short-term interest rates by 25 BPS, in a preemptive strike against inflation.

We were not surprised that the Feds took action, we were surprised at the timing. We think, the Feds may have acted a bit prematurely. The next question is, will the Fed need to increase in one or two more such moves? As we see it, they will need to raise rates one more time, by 25 BPS, to insure a low inflation environment. It is our expectation that the next increase will not be followed until later in the year, unless there is further evidence of gaining strength in the labor market of demand indicators.

EQUITIES:

The Fed moved to raise short-term interest takes, and stock market graciously cheered. The expectation of a Fed move was no surprise to the markets. The question now facing the financial markets is, when will the next move come? As we see it, the fact that the Fed's may need to increase short-term rates one more time, will keep the stock market on the defensive. We do not see the stock market moving in any excessive direction. We believe, the stock market will continue to trade in a trading range, as investors await the next parade of earnings reports. We see the recent selloff in the technology group as a buying opportunity. DOLLAR: We see the greenback consolidating at present levels. We expect the U.S. Dollars to reverse. We have been saying the dollar gains will eventually take its toll on the U.S. economy. The dollar is too strong!

GOLD:

The 25 BPS hike was not good news for the gold market, The initial reaction was on the negative side, however, we do not think the increase will be long lasting. We expect the market to work its way back up to the 360 level.

BONDS:

No change, long-term yields should hold the 7% range.

Added to the WWW 04-17-97
Last updated on 04-17-97

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