This is a partial transcript from "Your World with Neil Cavuto," May 4, 2004, that was edited for clarity.

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NEIL CAVUTO, HOST: The party is over. Alan Greenspan (search) and his cohorts on the Fed all but making it official Tuesday: The era of 40-year lows in interest rates is coming to a close, maybe sooner than you think.

No one expected the Federal Reserve (search) to raise rates Tuesday. And it did not. What it did do was send a very powerful signal today that it will, and soon. And we have got you covered. In San Francisco, with former Fed vice chairman and Greenspan buddy, Preston Martin, on what his pals are up to now. In Washington, Kiplinger’s editor Knight Kiplinger on what the markets are responding to now. And in New York, with Wall Street legend Muriel Siebert on what you got to do now.

No surprise, Preston, but the question is when they hike, when do you think it will be?

PRESTON MARTIN, FMR. FEDERAL RESERVE VICE CHMN.: Oh, I think they will wait until August and begin a series of 25 basis point increases in the Fed Funds rate. They’ll continue to pump the money supply at 5 or 6 or 7 percent. And they are watching the very rapid growth of the GDP which is at a several-year high for last year and.

CAVUTO: All right, good point. Well, Mickey Siebert, I want to ask you that, the Federal Funds rate, the overnight bank lending rate over which the Fed has direct control, a lot of the adjustable rate mortgages are pegged to that, if that starts moving up, Mickey, are you worried?

MURIEL SIEBERT, SIEBERT & CO. CHAIRWOMAN: Well, I’m not worry- worrying Neil, I think corporations will be in pretty good shape because they sold just tens of billions of dollars worth of very low-cost paper, and they’ve strengthened their balance sheets.

I’m worried about the consumer because as rates move up, it means their mortgages (search) move up, it takes away buying power, it means that credit cards move up. I think the Fed is going to put it off as long as they can, they don’t like to raise rates in an election year.

CAVUTO: All right, as long as they can being August?

SIEBERT: Probably August, we’ll look at the numbers in a month.

CAVUTO: OK. Knight, let me ask you this, there are a lot of people in this country who are seriously leveraged in this country, the individuals that Muriel talked about, who might find a backup in short-term rates, and their adjustable rate mortgages too much to bear. How much can we bear?

KNIGHT KIPLINGER, KIPLINGER’S PERSONAL FINANCE: I think this economy can bear quite a bit. The bullish news about the Fed statement today is that they have enough confidence in the staying power, the legs of this recovery, to believe that by this summer, this economy can tolerate acceptably quarter-point increases, now for the next year, year-and-a-half. I think they’re raise quarter-point amounts every two months through 2005, bringing us to 3, 3 to 4 percent on short-term rates, a year-and-a-half from now.

CAVUTO: You know, Preston Martin, the fear is that the Fed overdoes it, they say sometimes it overdoes it easing, it overdoes it hiking, could the Fed risk doing the same again if we get up to 4 or even higher overnight bank lending rates?

MARTIN: They could if they did it too rapidly, but remember that the Fed is looking at the probable GDP and prices and so forth for next year, that monetary policy changes take six months, nine months, 12 months, to have their bite on the economy.

CAVUTO: Let me ask you, Muriel, you know, this recovery, it is certainly picking up steam. But it is not across the board robust, job gains, you know, have picked up lately, but they are still fairly paltry. And I am wondering if the Fed is keeping on one eye on that and wondering, all right, if we are going to start addressing inflation, we are going to be more tentative than we would have been, what do you think?

SIEBERT: I think they are watching employment very closely. I think they are watching the price of oil closely. Oil has hit another new high today. I mean, that is like another tax cut in terms of the working people because it just takes away from their discretionary income. They’ve got a lot of things they are watching. I think they are watching what happens with commodities because of China. We have some things going on now that we have never seen before at the same time.

CAVUTO: You know, Knight Kiplinger, I know there is this fear of higher interest rates, I think we have been spoiled with the 40-year low in interest rates to think it is our birth right to always have them.

(LAUGHTER)

KIPLINGER: That’s right.

CAVUTO: And I notice generally, Knight, that when we do have interest rates moving up, it is generally a sign of a good economy, and that trumps the higher rates. Will it be this time?

KIPLINGER: I think so, too. Remember, even at a point or 2 points above today’s rates, we are still at historically very low to moderate interest rates. It is not going to choke off the housing boom. It is not going to choke off the normal credit needs of corporate America. Corporate earnings are strong across the board. Yes. There are some inflationary pressures at the producer price level and the commodities that Mickey referred to, oil and other commodities. But generally this economy can accept considerably higher interest rates without stalling out. And that is what the Fed is telling us today.

CAVUTO: All right, Knight, final word on the subject. Preston, my friend, I wanted to thank you, always a pleasure. And Muriel Siebert, again, to you as well.

SIEBERT: Thank you.

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