Fed Rate Increase Could Boost Funds Rate To 6.5%

Chairman Alan Greenspan and his Federal Reserve colleagues don't always do what companies and industry executives expect -- or what they fear. But there's little doubt that the central bank's Federal Open Market Committee (FOMC) will raise short-term U.S. interest rates by 50 basis points (one-half of 1%) at its meeting May 16. Their action would bring the economically potent federal funds rate to 6.5%. What next? Bruce Steinberg, chief economist of Merrill Lynch & Co., New York, believes the FOMC will add another 25 basis points to the federal funds rate, bringing it to 6.75%, when it meets on Jun. 27-28. However, David Wyss, chief economist at Standard and Poor's DRI, Lexington, Mass., expects the inflation-wary FOMC to repeat its expected May 50-basis-points increase in June. "It seems unlikely that the Fed would move 50 basis points in May and then go back to a 25-point move in June," says Wyss.