Rate-cut odds continue to fall, with the market now priced for no chance ofan interest rate cut at the Fed's Jan. 31 FOMC meeting. The odds wereas high as 24% on Sept. 1. This change would at first blush appear tobe bad news for the equity market, but as I have said recently, some degreeof weakness in the bond market is good for the stock market, if thatweakness is the result of a reduction in the market's assessment of thepossibility of a recession.

There are limits, however, to the benefits thatthe removal of this threat can have. In particular, if the current economicreacceleration is too rapid, rate hikes will come back into the equation, anobvious negative for equities.

For now, at least, the economy is in a zone where growth is "just right" butit is a narrow zone that is unlikely to hold for an extended period. Hence,movement toward either a slow-growth or high-rate environment couldeventually act to restrain investor optimism.

Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of

The Strategic Bond Investor

. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback;

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