Global fund managers feel U.S. short-term interest rates need to rise to almost 4% on average to achieve neutrality, according to a new survey.
   The Merrill Lynch Survey of Fund Managers for July found that fixed-income fund managers saw neutrality-the point at which interests rates neither stimulate nor repress economic growth-at 3.9% and equity fund managers felt 3.8% was the sweet spot for which the Federal Reserve should strive. The rate currently stands at 3.25%.
   The view may reflect the fact that managers are wary of the lack of pricing power among corporations and tightening margins, according to the survey's authors. More than half of the 273 surveyed fund managers feel corporate margins will decrease over the next year.
   "There's a greater consensus that interest rates need to rise further, but the cyclical story remains mixed," says David Bowers, chief global investment strategist at Merrill Lynch. "It's true that growth is back, but managers seem unconvinced this will be sufficient to support margins."
   The survey also found a growing concern about inflation, with 37% of survey respondents expecting global core inflation to be higher a year from now-up from 22% who felt that way a month earlier.
   Managers, however, were upbeat on expectations for growth, earnings and profits. Only 6% of the managers expects global growth to weaken over the next year. That's an improvement from a month earlier, when a third of respondents expected weakened growth.
   Fewer managers than last month-19% compared to 33% a month earlier-feel that corporate profits will deteriorate over the next year.