"In the face of overwhelmingly difficult economic fundamentals, the market is expressing euphoric Optimism based entirely on technical factors." This is the way one corporate trader expressed his feelings on the strength in the bond markets during the past few weeks.

A slightly different view was expressed by a municipal participant. He stated the "technicians have viewed the markets as technical in nature. In the true sense, technical means short time one day, one week. The situation we have now has persisted during the first part of 1979. The technicians would like to think that bonds will get cheaper somewhere down the line, but it looks like the strength might persist for some time. To be univested (in municipals) might be the wrong way to be."

This strength was shown last week: Prices continued to rise as the wholesale price index climbed 1 percent for March. Inflation remains strong with perhaps the worst yet to come.

Economists viewing the same problem see two different scenarios. One says that the economy is slowing; the money supply is being curtailed: housing is falling off; the consumer is up to his ears in debt; and consumer spending, the backbone of the economy, will slow and the economy will slip into a recession. With the recession will come a slowing of inflation, and interest rates will fall.

From another vantage point, a well-known economist states that, far from slowing, the economy is overheated and operating at capacity. Consequently, more goods just can't be produced, and the economy gives the appearance of losing steam. But at this part of the business cycle, there is more demand and more money chasing fewer goods a situation that is reponsible for the high level of inflation as prices are bid up.

According to this economist, the real question is what is the real, or embedded rate of inflation in our economy? Seven percent? Eight percent? Until this real rate of inflation is lowered, interest rates are not going to fall by much, and more than likely they will move higher.

So there is the dilemma. What must be watched is the inflation rate and the vigor in the economy. The economic facts are still too divergent to offer a clear-cut direction of rates. Another sign of strength in the economy would be strong growth in the money supply.