fyi: Pimco's McCulley Says Federal Reserve Will Lower Interest Rate June 10 (Bloomberg) - The Federal Reserve is likely to make a half percentage point cut in the benchmark interest rate at its next meeting, said Paul McCulley, a managing director at Pacific Investment Management Co., which manages the world's largest bond fund. ``The odds favor that the Fed eases, and that it will be the last ease of this cycle,'' McCulley said in an interview. ``The marketplace has moved the odds pretty dramatically, and the Fed doesn't like to disappoint the markets. So I would say it's more likely than not. McCulley, who oversees about $90 billion at Pimco, spoke today at the Northeast State Treasurers Annual Conference in Newport, Rhode Island. He forecast inflation will increase to more than 3 percent during the next three to five years. ``The Fed is not listening to private sector calls to prevent inflation. The Fed is trying to generate it,'' McCulley said in his speech. Traders see a 65 percent chance that the Fed's policy-setting board will lower its target rate for overnight loans between banks, now at 1.25 percent, by a half percentage point at a June 24-25 meeting, based on the 0.965 percent yield on the July Fed funds contract. Fed funds futures gauge expectations for average overnight rates in a particular month. McCulley advised investors buy tangible assets such as commodities, real estate and timber as hedges against inflation. ``I think financial assets are going to be ho-hum this decade,'' he said. McCulley also said investors shouldn't own too many stocks versus bonds, and said that within equity holdings, they should have about a 50-50 split between growth and value stocks. McCulley, who said he's bullish on corporate bonds, said fixed-income holdings shouldn't include too much treasury debt versus corporate bonds. --Eddie Baeb in Newport, Rhode Island at (1) 617) 338-5803 or at ebaeb@Bloomberg.net, through the New York newsroom. Editor: Conley.