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

DATE: MONDAY, April 4, 1994                   TAG: 9404040112
SECTION: NATIONAL/INTERNATIONAL                    PAGE: A1   EDITION: METRO 
SOURCE: Los Angeles Times
DATELINE: WASHINGTON                                LENGTH: Medium

WALL STREET DISTRESSING WASHINGTON

All eyes in the capital will be on Wall Street this morning, as Clinton administration officials and policy-makers at the Federal Reserve Board watch to see if the stock market's bloody retreat last week will continue in the face of rising interest rates and concerns about a resurgence of inflation.

From President Clinton on down, the administration's line has been that stock market volatility is relatively unimportant in the face of a rapidly improving national economy.

"We are going to have an appropriate public policy for what we think is happening over the long term," National Economic Council Chairman Robert Rubin said Sunday in a television interview.

"What we are not going to do, because the president won't let us do it, is react to the short-term fluctuations," of the stock market, he added.

The market posted a loss of 139 points over the past week's holiday-shortened trading, continuing a sharp selloff of more than 300 points that began in earnest in early February. The dive has been attributed to a response to the Fed's moves to raise interest rates for the first time in five years.

At the Fed, officials have shown no outward signs of believing that they moved too fast, or too far, to raise rates. Indeed, just-released minutes of a key February policy meeting show that Chairman Alan Greenspan and other top officials expected a sharp reaction from Wall Street to their actions - especially because Greenspan planned to publicly announce the move, a departure from Fed tradition.

Analysts noted that the minutes of the meeting indicate that the Fed was counting on its interest rate increase to deflate an overheated stock market.

Before the Fed's action, many analysts both inside and outside the central bank were arguing that the stock market was badly overpriced, partly because of the deluge of money into the market from mutual fund investors. Fearing an increase in speculation, Fed officials decided to move to pop Wall Street's bubble. So on Feb. 4, the Fed raised its benchmark federal funds rate by a quarter of a percentage point, and then followed that with one more quarter-point increase in March.

Although long-term interest rates have risen by close to 1 percentage point since they approached record lows late last year, they are still far lower than they were throughout most of the 1980s, when the stock market roared. And so most analysts and investment advisers are urging calm and counseling their clients to ride out the market's bumpy ride.

In the confusing world of the financial markets, good economic news is often bad news for Wall Street, where traders fear that fast growth will bring rising inflation, which erodes the values of both stocks and bonds.

But many observers say they believe that the market has badly overreacted to both the Fed's actions and the threat from inflation.

by CNB