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

DATE: WEDNESDAY, February 9, 1994                   TAG: 9402090065
SECTION: BUSINESS                    PAGE: C-8   EDITION: METRO 
SOURCE: Associated Press
DATELINE: WASHINGTON                                LENGTH: Short

LONG-TERM INTEREST RATES SUCH AS HOME MORTGAGES

Long-term interest rates such as home mortgages are not necessarily headed higher and could drop even though the Federal Reserve has started nudging up short-term interest rates, the Clinton administration said Tuesday.

The central bank Friday raised a key short-term rate for the first time in five years. It pushed the federal funds rate, the rate charged among banks on overnight loans, from 3 percent to 3.25 percent.

Economists expect that to ripple through to other short-term rates, such as those paid on deposits or charged on auto loans.

Treasury Secretary Lloyd Bentsen and Laura Tyson, chairwoman of the White House Council of Economic Advisers, told the House Budget Committee this need not spill over into long-term rates, such as those on 30-year mortgages.

"This modest increase in short-term rates . . . has a very minor effect on long-term rates," Bentsen said. "We look for long-term rates to stay relatively constant and . . . they could actually come down."

In trading Tuesday, the rate on the 30-year Treasury bond rose to 6.45 percent, the highest since August. Before the Fed's move, it had been 6.3 percent and in October was 5.74 percent.

However, Tyson said, "Even with the adjustment up on the short-term rate side, we believe there is still scope for long-term rates to remain unaffected. . . . There is no reason to predict that long-term rates in fact will stay higher."

by CNB