Merrill Anticipates June Fed Rate Hike

ByJohn S. McClenahen What a difference a bullish job creation report makes! In the wake of last Friday's report from the Labor Department showing the U.S. economy added 288,000 jobs in April, Merrill Lynch & Co. has revised its Federal Reserve interest-rate hike forecast. Recently the New York-based securities firm foresaw only two interest-rate increases this year. It now predicts three, with Chairman Alan Greenspan and his Federal Open Market Committee (FOMC) colleagues beginning by raising the influential federal funds rate by 25 basis points on June 30. Merrill expects another 25 basis-point hike at the FOMC's Aug. 10 meeting and a third increase of 25 basis points in either November or December. That series of hikes would raise the federal funds rate, now 1%, to 1.75% by yearend. Could there be more than three interest rate increases this year? Only "if the core CPI data behave badly," says David A. Rosenberg, Merrill's chief North American economist. The Labor Department is slated to release CPI data for April this Friday, May 14.