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Thursday, November 09, 2006

George Soros Advisor On Interest Rates In US & EU

By Yaser Anwar, CSC of Equity Investment Ideas

George Soros’ chief advisor on globalization issues, Karin Lissakers, says that she expects the US and the ECB to raise interest rates in the coming months, according to reports by Irish news sites RTE News and FinFacts.

Lissakers told an audience of the Irish Life conference on the future direction of pensions that "given underlying conditions" she expects the Fed to "be at the ready with another interest rate rise or two."

With the Dow Jones industrial average closing above 12K for the first time ever, Lissakers added, "If markets show another burst of exuberance which feeds into consumer and corporate behavior resuming upward pressure on prices, I would expect that move to come fast. Most likely, the ECB would follow suit."

Lissakers’ comments are contrary to most analysts’ view that the Fed will likely cut rates when it acts again. But Fed members in recent weeks have indicated that they are not comfortable with the current pace of inflation.

For the near term, Lissakers said that investors would have to live with "continued uncertainty," but that she is in the "soft landing camp" for the global economy in the short to medium term.

"I just don’t see the conditions for a sharp economic reversal. A US slowdown is highly likely; the Fed will make it happen. And that will probably have some damping effect in Europe. It’s no longer a fact that when the US catches a cold the rest of the world gets the flu. "… I think that global economic linkages are sufficiently complex that a US downturn will not trigger a domino effect dragging down other major economies," said Lissakers.

Lissakers sees emerging markets as having a strong beneficial effect on the global economy. "On the other hand, global linkages across economies are sufficiently strong so that autonomous growth, particularly in the larger emerging markets, will help to cushion the US and European slowdowns."

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