Interest rates predicted to rise

INTEREST rates in Europe and the United States are set to rise before the end of the summer, an economist with the US Conference Board predicted yesterday.

Ken Goldstein, responsible for analysing current trends in labour market activity and forecasting near-term economic development, said US rates would be the first to rise.

He predicted a 1% rise in four installments of 25 basis points and said it could begin as early as June.

Most of these increases would be matched by the European Central Bank, as there would be a co-ordinated approach by the chairman of the US Federal Reserve Alan Greenspan and ECB president Jean Claude Trichet.

With interest rates moving in tandem, the implications for the exchange rate between the dollar and euro would be minimal, he said.

"If Greenspan moves in June, Trichet is going to move in July as the two central banks will move in a co-ordinated fashion throughout 2004 and 2005," Mr Goldstein told reporters after his address to the IMI conference in Killarney.

The 1% interest rate hike, would not hit the housing boom in America. The high level of house starts in the US, which in theory was greater than what was required, was temporary and would not go on for ever. He said the same thing was happening here.

Mr Goldstein said next week's first-quarter US GDP figures should show growth of up to 5%, and could do even better in the second quarter.

He is not surprised at the recovery, saying the only surprise is how long the upturn took to get off the ground and feed into the labour market. Business investment is growing at 10%-15%, well ahead of economic growth, though there is still caution about the economic outlook.

The big surprise was the hike in the number of jobs, something that would continue over the coming months in the region of 125,000 to 150,000 a month.