Fear of Growth: Economic Gains Spook Bond Buyers, but Risk Of Inflation Is Low --- In Fact, Some Experts Think Bigger Peril Is Weakness When Tax Rise Kicks In --- Bentsen's Mortgage-Rate Bet
Talk about nervous. The economy merely flexes some long-unused muscles and investors fall all over themselves heading for the exits.</br></br>No doubt about it, the economy is putting on a modest show of strength. Cars and houses are selling better, shoppers are loosening their purse strings and more people are being put to work. If this keeps up, economists predict, the economy will grow at an annual rate of between 3% and 4% in the current quarter, the best since a burst of growth in the last quarter of 1992.</br></br>But with long-term bond prices at lofty levels, interest rates at their lowest since the Treasury began selling 30-year bonds in 1977, and stock prices near record highs, early evidence of renewed growth seemed like the last thing investors wanted to see last week. To some it conjured up visions of tight supplies of goods and services, rising prices, and a Federal Reserve only too willing to fight inflation by raising interest rates to slow an overheating economy.</br></br>The result: a startling weeklong sell-off in the bond market and a two-day plunge in stock prices. Suddenly interest rates were rising and stocks looked as if they were teetering on the edge of a bear market.</br></br>"What is so amazing to me is that market psychology turned so quickly on such a small pickup in growth," marvels Robert Hormats, vice chairman of Goldman Sachs International.