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Funds see Fed 'fine-tuning'
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June 15, 1999: 5:08 p.m. ET
Monthly Merrill Lynch survey thinks Fed will raise rates only once
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NEW YORK (CNNfn) - Most U.S. mutual-fund managers think the Federal Reserve will raise short-term interest rates by 25 basis points to 5 percent by the end of the year, a new Merrill Lynch survey says.
But even though 94 percent of the managers surveyed expect an uptick in the Fed funds rate, they believe it will be a one-time "fine-tuning" rather than the first of many increases, the poll found.
"A tap on the brakes might be all that is needed to cool an internally generated upturn in inflation," the survey said.
Only 37 percent of the managers think the inflation rate will rise by the end of the year, the survey found.
Merrill Lynch commissions a survey every month of managers from around the globe.
Managers felt the greatest inflation threat to the U.S. economy comes from overseas. If Japan continues to grow in the second half of 1999 as European demand heats up, it could raise oil prices and push U.S. inflation higher, the survey found.
Merrill Lynch found a "major change" is about to take place as the U.S. economy slows in 2000 while Asia and Europe recovers.
Merrill Lynch has overweighted Asian and European securities and underweighted U.S. securities. Managers have downgraded their 2000 earnings growth forecasts to 5.8% from 6.6% last month.
Managers found that the Japanese turnaround is more than a "flash in the pan," and was under way before the country released optimistic GDP figures for the first quarter. 
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Merrill Lynch
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