Thu, Mar 04, 2004 - Page 10 News List

US Fed expected to raise rates

LOOKING UP The president of Merrill Lynch Investment Managers also said that he saw no reason why the Taiwan Stock Exchange index wouldn't rise to 8,000


With a stronger-than-expected economic recovery around the corner, the US Federal Reserve is expected to start pushing up interest rates this year, said Bob Doll, president and chief investment officer of Merrill Lynch Investment Managers.

"Even if it doubles, [the interest rate] still remains very low," Doll told a press conference yesterday in Taipei. He said that over the next 12 months, a 2-percentage-point climb in quarter-point rises was possible.

US Federal Reserve Chairman Alan Greenspan said on Tuesday that extra-low short-term interest rates eventually will have to go up. He gave no clue at to when that might happen.

"The federal funds rate is accommodative ... but at some point, it will have to rise to a more neutral state," Greenspan said after delivering a speech to the Economic Club of New York.

With inflation low and currently not a risk to the economy, Greenspan and his colleagues, who are responsible for setting interest-rate policy in the US, have said the Fed can be patient in considering rate increases.

The rate-setting Federal Open Market Committee is slated to meet on March 16.

In yesterday's presentation, Doll said that Merrill Lynch estimated that the US economy would this year grow 4 percent, the fastest rate for five years, as corporate earnings improve.

If the US economy and corporate earnings continue to grow as Merrill Lynch expects, Doll said that equities will become the strongest investment vehicle, outperforming cash, which has less than 1 percent return, and bonds, which have historically low returns.

Equities in the information technology, consumer discretionary, financial and energy sectors will take the lead as substantial outperformers, he said.

Asian emerging markets will also continue to enjoy a boom year this year with interest from overseas investors.

"We're still enthusiastic about non-US markets with Asia on the top of our list," Doll said.

When asked if he thought the local stock stock market would pass 8,000 points, Doll replied: "I don't see why not."

He said that with the world recovery and the regional recovery on the way, the market should continue to go up.

Doll said that since the US was still suffering from current account deficits, there would be slow and steady pressure on the US greenback against the euro, although a temporary rise was likely.

The Chinese yuan could also see a 5 percent appreciation, he added.

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