This is not expected to occur within our forecast horizon which extends through the end of 1999. It is not unusual for U.S. stock prices to move like a staircase - after a large upward step, we are now on the flat part of the stair. In the past, these trading ranges have been characterized by increased volatility and sector rotation. Fundamental factors will determine the direction when the trading range ends. We expect the second half of 1998 and 1999 to bring additional economic and profit growth, with little upward inflation pressure.
Stock prices are therefore likely to move higher.
The impact of instability in Asia has concerned us since 1996. Weak conditions in Asia affect the United States in two ways. First, U.S. GDP and profit growth is slower than it might have been. Second, U.S. monetary policy, interest rates, and currency all reflect conditions outside the country. Interestingly, the U.S. economy is not as sensitive to currency changes as it used to be, owing to the changing composition of our economy.