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Cohen: Rates no concern
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June 17, 1999: 5:11 p.m. ET
Market guru says investors, economy already prepared for bump by Fed
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NEW YORK (CNNfn) - Wall Street guru Abby Joseph Cohen said Thursday that an expected hike in U.S. short-term interest rates later this month would do little to disrupt the financial markets or stunt the country's economic expansion.
Cohen, co-chairwoman of Goldman Sachs' investment committee, said investors are already more than prepared for the Federal Reserve to tighten rates later this month, as evidenced by the sharp rise in intermediate and long-term rates recently.
"Such a 'flu shot' is now widely expected and would be unlikely to unsettle investors beyond a transitory period," Cohen said in a written statement.
Cohen's comments followed a speech by Federal Reserve Chairman Alan Greenspan earlier in the day in which he indicated the Fed needed to take "pre-emptive" steps to keep the economy growing with little inflation.
Most investors took that as a sign the Federal Reserve Open Market Committee would raise short term rates by a quarter point when it convened later this month. Cohen said the economy's mild inflation backdrop suggests the Fed would likely stop there, however, leaving the economy plenty of room to grow.
"If undertaken, it would be aimed at extending, not ending, the current economic expansion," Cohen said.
Cohen projects corporate profits will continue to grow at a 7 percent to 8 percent rate, although she said, if anything, first quarter results suggest that view is "too cautious."
Still, Cohen believes at today's higher interest rates, the S&P 500 is overvalued by about 5 percent, a level "not deemed to be significant" since prior periods of overvaluation reached levels of 35 percent.
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Goldman Sachs
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