Fed to Raise Rates to 5.25% according to Bank of Ireland Chief Economist

According to the June Bank of Ireland Global Markets Economic Research Bulletin issued today (Tuesday 27 June, 2006), US interest rates will move to 5.25%, and the possibility of even higher rates will likely keep the Euro/Dollar rate at $1.25.

Commenting, Dr Dan McLaughlin, Chief Economist, Bank of Ireland said: "The market believes that another quarter point increase in US rates in late June is inevitable, taking short rates to 5.25%, and is giving a high probability of a 5.5% Fed Funds rate at the August meeting. Indeed, a number of the major US investment banks are now predicting 6% short rates in the US, a significant change in sentiments relative to a few months ago. Yet, expectations about Euro rates have not greatly changed over the same time period, and it is this dichotomy which has precipitated the recent rally in the dollar."

He added: "Evidence is pointing to a softening of US growth, albeit not at dramatic levels, with a slowing housing market contributing to a weaker tone in consumer spending. This would argue against further monetary tightening, but the Federal Reserve has publicly expressed concern about inflation. We also see rates moving to 5.25%, and the chance of even higher rates may well keep the Euro/Dollar rate at around $1.25."

Ends

Tuesday 27 June, 2006

For reference:

Michael Crowley
Economist
Bank of Ireland
Tel:01 609 3341

Damien Daly
Head of Marketing
Bank of Ireland Global Markets
Tel:01 609 3303

Anne Mathews
Media Relations Manager
Corporate Communications
Bank of Ireland
Tel:01 604 3833

Profile of Bank of Ireland Global Markets

Bank of Ireland Global Markets is the number one treasury services provider in Ireland. Global Markets' key offering is a comprehensive range of treasury and international banking services to Irish and international companies from its global headquarters in Dublin. Customers are provided with a single point of contact to handle all their treasury management needs from currency, interest rate and international trade risk management to treasury investment solutions and global payments. It has built up considerable expertise in risk management and has a reputation for innovation and price competitiveness in the marketplace. Bank of Ireland Global Markets' No. 1 position is recognised through award winning, including the iMoneyNet Offshore Money Fund Report (OMFR) Award for its US Dollar liquidity fund, the Irish Association of Corporate Treasurers (IACT), Euromoney and The Banker publications.

Bank of Ireland Global Markets is regulated by the Financial Regulator.