Abby Joseph Cohen Sees Interest Rates Rising

Goldman Sachs Senior Investment Strategist Abby Joseph Cohen told CNBC Wednesday that she sees U.S. interest rates climbing, though not necessarily in the short term.

"In our intermediate to our long-term work on the stock market, we are assuming that interest rates will be moving higher, not necessarily right away," Cohen said. "This is a Fed that is not anxious to lower interest rates again aggressively any time soon."

Cohen also said that Goldman Sachs expects sluggish economic growth and corporate profits.

"We think that this is a stock market that will spend most of its time, as it has in recent weeks, between 1300 and 1400 on the S&P 500, but as we move out in the next few months, fair value is probably closer to 1500 on the S&P 500," she said.

The Federal Reserve's view on inflation relates to headline inflation rather than core inflation, said Cohen.

"This is a different sort of stagflation environment," she said. "It's not one in which it's deeply embedded in the structure of the economy and the structure of compensation, but it's very much headline related and related to commodities." (See the entire interview in the video at left.)

Meanwhile, Paul McCulley, managing director Pimco, told CNBC that there's not much the Federal Reserve can do to ease economic turmoil.

"They recognize that the economy is weak, but they want to go on a hold now because they look at it as counterproductive to go even lower, particularly since they lowered Fed Funds Rate, gives you a lower dollar and then fuels commodity speculation," he said. "The Fed is between a rock and a hard place, and it's going to sit on its backside."

McCulley, who remains focused on the corporate bond market, points to financials as particularly attractive right now.

"The financials are having to issue a great deal of new capital, both debt capital and equity capital," he said. "So if you are a believer that the financial system in America is a growing concern, that is an excellent area to get into."

Investors should ask themselves whether Treasury bonds remain attractive in an inflationary environment, said Cohen.

"We think that equities in general tend to be a pretty good hedge against inflation," she said. "Equities and shares do well in a period of moderate inflation."

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