wmeubank@ocp.kcmo.com
FIRST CHICAGO
THE FIRST NATIONAL BANK OF CHICAGO
One First National Plaza, Chicago, Illinois
(October 7, 1997) FINANCIAL INSTRUMENTS: INTEREST RATES–As expected, the Fed remained firmly on the sidelines in September. Signs that inflation remains relatively benign expected to keep the Fed sidelined through the balance year. The fed funds rate is still expected to end the year at its current 5½% level. Persistently strong consumption, however, would increase the risk of a small 1/4 point credibility move this fall.
Bond yields have dropped on signs that inflation remains well behaved and employment growth is moderating. Look for yields to rise again on signs of persistently strong growth and fears of a Fed tightening this fall. The yield on the real GDP 30-year bond is expected to end the year at 6- 5/8%.
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