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

DATE: TUESDAY, February 22, 1994                   TAG: 9402220029
SECTION: BUSINESS                    PAGE: A9   EDITION: STATE 
SOURCE: Associated Press
DATELINE: WASHINGTON                                 LENGTH: Medium

MOUNTING CRITICISM GREENSPAN MEETS HOUSE

It was billed as a "pre-emptive strike" against inflation, but Federal Reserve Chairman Alan Greenspan is coming under heavy fire from critics who say he may have moved too soon in pushing up interest rates.

The idea was that an interest-rate boost would help to hold down such key borrowing costs as long-term mortgage rates, but it hasn't worked out that way.

"Slow money growth will drag down the economy - not a wise or compassionate move when millions of American are in dire straits and nearly 7 percent of the labor force is unemployed," said House Banking Committee Chairman Henry Gonzalez, D-Texas.

Greenspan can expect more complaints like that today when he appears before a House Banking subcommittee to give the Fed's twice-a-year report on the economy and interest rates.

He will be forced to defend the Fed's decision Feb. 4 to boost its target for the federal funds rate, the interest banks charge each other, from 3 percent to 3.25 percent.

The small upward nudge had a big effect on Wall Street. The Dow Jones industrial average plunged 96 points in one day; and long-term interest rates, the kind that were supposed to be held back by the Fed's move, have been steadily rising.

Friday, the yield on the Treasury's benchmark 30-year bond jumped to 6.62 percent, its highest level since last July and up 0.30 percentage point from where it was trading before the Fed's move.

That means long-term rates so far have risen more than short-term rates, the opposite impact from the desired one.

The plunge in bond prices occurred even though the news on inflation has continued to be extraordinarily good. The government reported Thursday that consumer prices did not rise at all in January, the first time that has occurred in more than four years.

Investors have chosen to ignore the good news on inflation and to worry instead about how fast the economy is growing. Analysts now think the gross domestic product raced ahead at an astonishing 7 percent annual rate in the final three months of the year.

"A growing number of market participants fear that the prolonged period of very low interest rates has finally triggered an economic boom and that inflation must eventually follow," said Bruce Steinberg, an economist at Merrill Lynch.

Memo: a different story ran in the Metro edition.

by CNB