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

DATE: WEDNESDAY, September 28, 1994                   TAG: 9409290025
SECTION: BUSINESS                    PAGE: B-8   EDITION: METRO 
SOURCE: Associated Press
DATELINE: WASHINGTON                                LENGTH: Medium

AS EXPECTED, NO INCREASE BY FED

The Federal Reserve refrained from pushing interest rates higher Tuesday, adopting a wait-and-see posture that analysts said probably would last until after the November elections.

While the lack of action had been widely predicted, financial markets still reacted adversely, at least initially.

Prices of stocks and bonds and the dollar all dropped sharply immediately following the midafternoon announcement, although they recovered most of their losses later in the day.

Analysts said the bond market, which always is worried about potential inflation, was disappointed that the Fed decided to put its credit tightening on hold.

``The market is off on a tangent, trying to read too much into whether the Fed does or does not tighten in any one month,'' said David Wyss, chief financial economist at DRI-McGraw Hill Inc.

The yield on the benchmark 30-year bond, which moves in the opposite direction from its price, jumped to 7.84 percent.

The central bank has increased interest rates five times this year, with all but one of the increases occurring in conjunction with a meeting of its policy-setting Federal Open Market Committee.

The last increase, on Aug. 16, pushed both the federal funds rate and the discount rate up by one-half percentage point, to 4.75 percent and 4 percent respectively. The funds rate is the interest that banks charge each other; the discount rate is the Fed's charge for direct loans to banks.

Many economists said they still expected the Fed to raise rates by another half-point Nov. 15, the date of its next Federal Open Market Committee meeting, although they said the panel may well have given Federal Reserve Chairman Alan Greenspan the power to move sooner than that on his own if the economic data warrant it.

But other analysts said Greenspan is not likely to use that authority so close to the Nov. 8 congressional elections, preferring to keep the Fed on the sidelines until after voters have gone to the polls.

Wyss said he was concerned that the Fed could make a mistake and overdo its credit tightening, raising the risk of recession in 1996.

``The real worry should not be that the Fed does too little, too late, but that the Fed does too much, too late,'' he said.

by CNB