NEW YORK (CNNfn) - Spin the wheel to see what the Fed will do with interest rates, and it will likely point to a hike. But what will that mean for the economy and for investors?
CNNfn.com asked Salomon Smith Barney's investment strategist John Manley what his thoughts were on the Fed's actions, where the economy was headed, and what investors should be watching.
CNNfn.com: What is your assessment of the current economic picture?
Manley: I think we are still in a high-growth, low-inflation environment. It's hard to point to anything to say the economy is going to slow down. The Fed is still ahead of the curve as far as inflation is concerned but they may have to do a bit more to stay ahead. Most people are already expecting severe tightening over the next six months. We're at very high levels of capacity but still showing high levels of growth -- when you expect the worst, it's not that hard to be pleasantly surprised.
CNNfn.com: Do you think the Fed will raise rates by a quarter percentage point or half a percentage point? Why and what will it mean for the market?
 Manley: We think it will be 50 basis points (half a percentage point). I think there's enough peripheral evidence that the risk/reward is tilted a little, but Mr. Greenspan is a very measured man. He's not precipitous and will wait to see what happens. I don't think it means that much for the market. I think it's expected and the market is going to hang on what happens with the economy.
CNNfn.com: What will the rate hikes mean for the traditional summer slow period -- will it be more steady?
Manley: I don't think anything is going to provide stability. I think ultimately it will provide comfort to the bond market and that will spill over to the stock market. The telecom revolution has slowed down the slowdown a bit. It slows down because people don't want to look, not because they can't. People used to go on vacation in the summer but (today) the fact that I'm on vacation doesn't mean I can't access the information. I don't think it is going to be that slow this summer.
CNNfn.com: How concerned should the Fed be about being too aggressive in an election year?
Manley: Politically, probably not an awful lot. If "too aggressive" means raising rates, then not (concerned) at all. They will do whatever they have to do. They have shown themselves to be fearless about contracting inflation. It's a question of balancing very subtle things.
The election is a secondary consideration as long as there's clear evidence that something needs to be done. Usually the market does well in the next six months, despite what people are thinking right now. They (the Fed) will raise rates to maintain pressure on the economy if it needs to be maintained.
CNNfn.com: Should the Fed be more/less aggressive?
Manley: I think they should maintain what they're doing which is a steady, sustainable approach. Right now, I don't think there's evidence for them to do much more than what's expected. Of the next four (Fed meetings), we're expecting 100 points but not all in a row. (Alan Greenspan) said it's not his job to knock the stock market down. I think an intermediate hike to shock the market would be out of character and not politically well received.
CNNfn.com: How should investors adjust their portfolios near-term, medium-term, and long-term?
 Manley: Given the volatility, I think investors have to be very pragmatic -- never get so far out of a sector that you can't buy a little bit if it gets knocked down and never get so far in that you can't sell a little. My long-term advice is to always buy companies with good growth. The concern the Fed is engendering by tightening is the same thing that is positive for the market. I think they're trying to make people nervous -- as unpleasant as (rate hikes) are, they do tend to moderate the economy and, in that respect, it's a positive thing.
* Disclaimer 
-- Compiled by Staff Writer Catherine Tymkiw
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