No two ways about it,say several Wall Streeters, rapidly swelling worries about the course of interest rates kept the stock market from flying yesterday after the announcement of the death of terrorist leader Abu Musab al-Zarqawi. Everyone, it seems, has an idea of where rates are headed. Probably you do, too. But would you bet $50,000 you’re right?

The head of a New York Stock Exchange member firm who loves to gamble, told me did just that. His $50,000 wager – which he said was made with a prominent retired fund manager a few days before Monday’s tough talk from new Fed skipper Ben Bernanke – calls for the Fed to raise short-term rates at each of the next two meetings of the Federal Open Market Committee on June 28-29 and August 8.

Our bettor received odds of 2.75-to-1, meaning if he wins he collects $137,500. To win, though, there has to be two consecutive rate hikes starting this month. If there’s a pause either this month or in August, he loses.

Based on what I’ve heard from a cross section of economists and money managers, I told him I thought he was going to lose.

The NYSE official, who asked he not be identified given the tax ramifications of the bet, figures Mr. Bernanke’s hawkish words Monday – namely his opinion that core inflation was too high – were a loud and clear signal to the financial community that a late June hike in the Fed funds rate to 5.25% from 5% is now pretty much assured. Adding fuel to this belief, he says, concern about inflation expectations was an issue raised at least 11 times at the May 10 FOMC meeting, versus only six times at the March meeting.

Economist Mark Vitner of Charlotte, N.C.-based Wachovia Securities, figures the official made a dumb bet. “I may be the last man on the planet who believes it, but I think the odds are 60-40 in favor of a Fed pause later this month.”

Why so? Because, he explains, of the uneasiness in the financial markets, softening economic data and the prospects of very favorable inflation numbers for May, as signaled by the reversal of commodity price increases. In terms of a softening economy, Mr. Vitner points to a slowdown in consumer spending, the inability of income growth to keep up with inflation, and the slowing rate of labor growth, as seen in disappointing new job creations in April and May.

After robust 5.3% GDP growth in the first quarter, Mr. Vitner expects economic growth to slow materially to about 3.4% in the current quarter and then slow again in the third and fourth quarters to 3%. In fact, he thinks the economy is softening to such an extent that Wachovia may shave its projected third- and fourth-quarter GDP growth targets to below 3%.

A University of Maryland’s economics professor, Peter Morici, also thinks the NYSE official made a poor wager. “He should have gotten much better odds, at least 10-to-1,” he says. Why so? “Because we have already seen the worst of the inflation numbers,” he says. In brief, he believes “the economy will slow enough and inflation will quell enough and that’s about it.” Accordingly, he sees just one more rate hike, possibly this month or one in August after a June pause.

But what about Mr. Bernanke’s tough talk on Monday? “His rhetoric will remain hawkish, but not his actions,” Mr. Morici believes. But after saying that, the good professor hedged by tossing in a caveat. “If it’s a case,” he says, “of the rookie (Mr. Bernanke) risking either a recession or inflation getting out of control, he’ll opt to risk a recession.”

As of now, financial futures are indicating there’s more than a 70% chance the Fed will initiate another rate hike later this month, its 17th in a row since June 2004. Actually, the yes or no decision on whether the Fed will or won’t boost rates again on June 29, some economists say, may well hinge on May’s Consumer Price Index core inflation number to be released June 14.

Wall Street’s consensus expectation is the May CPI core inflation number will come in at +.2%. But if it’s +.3%, or above, says Raymond James Financial economist Scott Brown, “all bets are off” because people will then view the higher figure as indicative of the strong likelihood of another rate increase.

Although he considers it a close call, Mr. Scott thinks a Fed pause is likely, given moderating economic growth and diminishing credit demand.

What does our $50,000 bettor think? The NYSE official hastens to say he’s no economist, but he argues inflation is anything but dead. He says almost everything he does these days costs him more than it did last month, which was more than it cost him the month before that.

But what about those experts who say inflation is contained? His response: The only people he knows who can truthfully say that are resting underground in the local cemetery.

dandordan@aol.com