By Ros Krasny
NEW YORK (Reuters) - While financial markets widely expect that the Federal Reserve will start a vigorous interest rate-cutting program in 2007, some big money managers believe the economy could be strong enough next year to even prompt a rate hike.
Major fixed-income investors at the Reuters Investment Outlook Summit in New York this week said that economic growth would not slow enough to warrant aggressive easing, and that the Fed would maintain its focus on tamping down inflation.
"To me, there's been a bias about being a bit more up-front in inflation" by the Fed, said Margaret Patel, portfolio manager at Pioneer Investments.
For now, though, fixed-income markets line up more behind the views of PIMCO's Bill Gross, manager of the world's largest bond fund, who expects pressure on the economy from the slumping housing market to force the Fed to ease.
Gross told the summit that the Fed would ease by as much as 100 basis points in 2007 from the current fed funds rate of 5.25 percent.
Rate cuts early in 2007 seemed inevitable after the Institute for Supply Management's November factory survey on December 1 dipped below the critical 50 threshold that separates contraction from growth. But fortunes reversed a week later when stronger-than-expected payrolls growth for the month rekindled wage inflation fears.
On Wednesday, rate futures projected an end-2007 funds rate of about 4.65 percent, or about 60 basis points of easing.
The 2007 assessments came as the Fed's policy-making committee earlier this week held rates steady for their fourth straight meeting. Continued...
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| Japan Investment | Jul 01 - 2, 2008 | Country Summits |
| Global Real Estate | Jun 23 - 25, 2008 | Real Estate |
| Consumer and Retail | Jun 16 - 18, 2008 | Consumer Retail |
| Investment Outlook | Jun 09 - 12, 2008 | Financial Services / Exchanges |
