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The debate over whether the

Federal Reserve

will raise interest rates soon has split many astute observers, including two of the biggest names at

Morgan Stanley


Market strategist Byron Wien believes the Fed will stand pat. Economist Stephen Roach comes down on the rate-raising side. Based on past performance, which is no guarantee by any means, investors might want to heed Wien more closely than Roach. Neither is a fool, but Roach has consistently called for much stronger growth and spiking interest rates during the past year, and neither has materialized.

Fed Chairman Alan Greenspan

may shed some light on this internal debate at Morgan Stanley on Wednesday, when he starts his two-day


congressional testimony.

Wien writes in a recent Morgan Stanley report that he foresees no change because "the evidence that the economy is strong is so uneven." For instance, he notes that while several economic indicators point upward, "none of the usual excesses have developed in this cycle. We have not built office towers, retail space, and apartment complexes to the point where the nation is awash in unrented space."

In addition, the strong U.S. dollar will play a role in the Fed's thinking. "The Fed doesn't want to make our currency more attractive by raising interest rates, nor will it want to raise borrowing costs for American business if sales are being hurt by softening exports," which happens with a strong domestic currency, he writes.

But in the same week, Roach writes that he thinks there is "an increasingly good chance" that Greenspan will use this week's testimony "as a forum to begin setting the stage for the monetary tightening of 1997." Why? "The real economy continues to grow at well above its inflation-stable potential, the labor market continues to tighten and a slow upturn in the wage cycle gathers momentum. At the same time, the pressures in the asset markets have continued to build. ¿ These are classic signs of excessive monetary stimulus."

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Meanwhile, among Monday's key numbers,

CNW Marketing/Research

reported that domestic car sales climbed 4.3% in the 10 days ended Thursday compared with the year-earlier period. Sales totaled 208,073, up from 199,530. Domestic truck sales rose 2.8% to 146,852 from 142,856.

The federal government's total budget surplus narrowed to $13.36 billion in January from $19.46 billion a year ago. The January figure also compares with December's revised $18.82 billion figure.

Tuesday's numbers


Treasury auctions

(1 p.m. EST): Auction of $17.5 billion two-year notes with $18.2 billion maturing.

Treasury auctions

(2:30 p.m. EST): The money department announces its three- and six-month bill auctions.

LJR/Redbook Research

(2:55 p.m. EST): Retail sales report for the week ended Saturday.

By Erle Norton