Whither interest rates?

The latest American Banker yield and rate survey reveals a striking division of opinion about where interest rates are headed between now and next fall.

One school of thought is that the Federal Reserve will cut the federal funds rate another quarter-point, to 5%, by Sept. 30 in response to a slowing economy and low inflation.

Economists like Philip Braverman of DKB Securities also expect market interest rates, as well as mortgage rates, to be about a half- point below current levels.

But another group of economists expects rates to go up, not down, in response to growing inflationary pressures.

William Dudley of Goldman, Sachs & Co. said he thinks the economy's unexpected strength of late will motivate the Fed to tighten the funds rate a quarter-point by late summer, and he sees that rate returning to 6% by yearend.

Others doubt the Fed will make any rate moves in the next few months. Charles Lieberman of Chase Manhattan Bank expects the Fed to delay a rate increase to avoid criticism.

But there is one point of agreement - that the Fed's monetary policymakers will neither raise nor lower rates when they meet in Washington Tuesday.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.