
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: TUESDAY, May 15, 1990                   TAG: 9005150543
SECTION: NATIONAL/INTERNATIONAL                    PAGE: A/4   EDITION: EVENING 
SOURCE: Associated Press
DATELINE: WASHINGTON                                LENGTH: Medium

ANALYSTS SAY FED UNLIKELY TO CHANGE MONETARY POLICY

Economists who predicted only two weeks ago that the Federal Reserve soon would nudge interest rates higher now say the central bank is satisfied with the inflation outlook and will leave monetary policy unchanged.

Statistics that pointed to an economic downturn in April have dispelled some analysts' belief that the economy would soon break free of its sluggishness of recent months.

They had been reasoning that renewed inflation would accompany any rebound and require the central bank to squeeze credit.

But now, after looking at new economic reports in the last 10 days, they say the Fed doesn't need to crack down, at least for awhile.

The unemployment rate in April jumped to 5.4 percent from 5.2 percent, the first increase in nearly a year. Retail sales unexpectedly slumped for the second month in a row. And inflation at the wholesale level improved for the third consecutive month.

"If you're sitting at the Federal Reserve . . . you're bound to breathe a sigh of relief after seeing those" numbers, said economist Lyle Gramley of the Mortgage Bankers Association of America, a former Fed board member himself.

The central bank's Federal Open Market Committee, which includes the seven board members and the presidents of the system's 12 regional banks, meets behind closed doors today to set monetary policy between now and its next meeting on July 2.

"My guess is the Fed will decide not to change policy," said Gramley.

The Federal Reserve last pushed up the benchmark federal funds rate, the interest banks charge among themselves for overnight loans, in March 1989, when it hit 10 percent.

As concern grew that a recession was nearing, the Fed cut the rate through the last half of 1989 until it reached 8.25 percent. Then it paused, waiting to see which way economic winds were blowing.

A consensus for a more restrictive monetary policy appeared to be developing, but with the release of the April reports, the winds changed.

"The guys pushing for tightening pretty much got their heads handed to them," said economist Michael Evans, a Washington-based consultant. "If they raised rates now, I would be shocked. The economic statistics are just not pointing in that direction."

Other arguments against a more restrictive monetary policy include the start of budget talks today between Bush administration officials and congressional leaders, fears of a regulatory credit crunch as bank examiners toughened their audits and international concern about the weakness of the Japanese yen.

by CNB