John J. Edwards III chatted on AOL MarketTalk on Monday, May 15. AOL's MarketTalk is hosted by Sage Online (Keyword: PF Live).

OnlineHost:

Live from New York, NY, please welcome John Edwards, assistant managing editor,

TheStreet.com

. John can answer questions about the latest market-moving news.

OnlineHost:

John does NOT offer individual stock commentaries or recommendations.

SageMoola:

Good afternoon and welcome to MarketTalk, Mr. Edwards!

Jedwards:

Thanks for having me. Great to be here!

Question:

Do you see the rally of late last week continuing in the short term?

Jedwards:

It does seem to be continuing in the very short term, and I think we may see it continue for at least part of tomorrow, depending on how the

Consumer Price Index

looks before the open. But I think the buying may be getting a little overdone in light of the

Fed's

real concerns about the hot economy. The Fed won't be done tightening with tomorrow's 50-basis-point increase, and that will dawn on people increasingly, I think.

Question:

Does it appear as if the defense and aerospace sector is finally turning around as earnings seem to be picking up and defense spending may be on the rise?

Jedwards:

It does seem that the wave of consolidation in the industry has yielded some real efficiencies, and the companies in the sector will be increasingly vigilant about locking in those efficiencies. But defense spending is hard to count on, and there's a lot of labor risk in the industry.

Question:

Mr. Edwards, Mr. Schaeffer, Melanie, would you say we have a booming economy?

Jedwards:

Yes, by almost any measure, we definitely do.

Question:

When will the Fed be done?

Jedwards:

It will depend largely on how the economy responds to this tightening cycle. Given the extraordinary resilience the economy has shown, and the tendency for economic indicators to lag Fed actions, I would expect we'll see a target fed funds rate of at least 7% before the Fed is finished. Many on Wall Street think we could see it as high as 7.5% (it's 6% right now), and I think that's very possible.

Question:

Do you see a scenario where a 50 bps tomorrow and another two rounds of 1/4% in June and August would somehow

increase

the chances we might inflict some "recession" fear among these talking economists/heads??

Jedwards:

We're already hearing murmurs of recession concern among many market participants, as you would expect with the Fed being this aggressive. The scenario you describe definitely would make those murmurs louder.

TheStreet.com's

Justin Lahart

wrote a very good

story on this issue last week; it's free on our site, and you should check it out.

Question:

Any comments on the takeover rumors surging on

Nabisco

(NGH)

?

Jedwards:

Looks like the company definitely is in play; the last report I saw indicated that

Philip Morris

(MO) - Get Report

might be interested. Can't really comment on it one way or the other, but it bears watching. Strategists such as Doug Cliggott of

J.P. Morgan

see consumer staples as a good play in this tightening environment, and consolidation would make them only more so.

Question:

Does the

NYSE

have anything to do with the Budget Deficit in Washington?

Jedwards:

Well, not really. For one thing, the government is currently running surpluses, not deficits. If you're asking whether gains in stocks have anything to do with keeping the budget in surplus, the answer is yes. A great deal of the deficit reduction that got us to this point stemmed from capital gains tax receipts, which have surged.

Question:

Is

Terra

(TRRA)

making any sense buying a U.S. portal in

Lycos

(LCOS)

? Shouldn't it make more sense for it to expand its coverage in the Hispanic Net markets via

StarMedia

(STRM) - Get Report

?

Jedwards:

It might make more sense if Terra were pursuing a niche strategy, but the company seems to want to try its hand at a diversified strategy. Lycos could be the linchpin for an expansion for Terra both in the U.S. and in Latin America, as well as elsewhere in the world.

SageMoola:

Thank you very much for joining us today, Mr. Edwards. It's always a pleasure!

Jedwards:

Always a pleasure to be here! Thanks for chatting, and I'll see you at

TheStreet.com

!