Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, August 17, 1993 TAG: 9308170042
SECTION: BUSINESS PAGE: B6 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
Most analysts think the Federal Open Market Committee, the Fed's monetary policy arm, will opt to keep short-term interest rates unchanged, as they have been for nearly a year.
"They're going to do absolutely nothing. Greenspan talked tough [last month], but at the time economic activity looked a little firmer than it does now and there was evidence that prices were on an upward trajectory," said economist Samuel D. Kahan of Fuji Securities Inc. in Chicago.
"Since then the economy has been mixed and the inflation news has been super good," Kahan said.
In two appearances before congressional committees, Greenspan warned, much more bluntly than usual, that the central bank would not hesitate to use higher interest rates to dampen inflation.
"At some point rates are going to have to move up," he said.
After he spoke, economists said they wouldn't be surprised if the Fed acted sometime after Oct. 1. But now, after examining the latest data on economic growth and prices, many think Fed action won't come until early next year.
"I don't think there's any reason for the Fed to raise rates. The economy is growing, but at a very slow rate. Inflation is a non-event," said economist Mark Zandi of Regional Financial Associates of West Chester, Pa. "I think probably the next move will be the spring of '94."
Since Greenspan's stern warning, several developments have argued for delaying any increase in the key short-term rate set by the Fed, the rate charged on overnight loans between banks. Known as the federal funds rate, it's been at 3 percent since last September.
Economic growth has been weaker than predicted. After Greenspan testified, the Commerce Department reported that the annual growth rate for the April-June quarter was a smaller-than-expected 1.6 percent.
And the early signs are that growth in the third quarter, while a bit better, will remain subdued.
The open market committee is composed of the seven members of the Federal Reserve Board and the presidents of the Fed's 12 regional banks, who rotate five votes among themselves.
The committee meets privately eight times a year to determine the course of monetary policy. The minutes of the meetings are released publicly with a six-week lag.
At the last meeting in which the committee's action is known, in May, it voted to bias its policy in favor of raising rates, but never followed through. Some analysts think the committee will maintain that bias this time, but others think it may shift back to a neutral stance, equally ready to raise or lower rates as conditions warrant.
by CNB