Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, July 7, 1994 TAG: 9407080031
SECTION: BUSINESS PAGE: B-8 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
Federal Reserve policy-makers concluded a two-day meeting Wednesday without announcing any rate change. Their brief statement said, ``The meeting of the Federal Open Market Committee ended at 12:35 p.m. and there will be no further announcement.''
Analysts said while it is clear the Fed is not boosting rates now, the statement left open the possibility an increase could come at any time if there are signs the economy is expanding too rapidly or inflation becomes worrisome.
``The Fed is putting primary emphasis on the domestic economy and only secondary emphasis on the dollar,'' said economist David Jones of Aubrey G. Lanston & Co., a Wall Street government securities dealer. ``What the Fed wants to do is wait for more economic data.''
There had been widespread speculation about a rate rise because of current worries over the declining value of the U.S. dollar on world currency markets.
The dollar has plummeted to record lows against the Japanese yen, and Wednesday fell to a low for the year against the German mark.
President Clinton, before departing for a weeklong visit to four European cities and a meeting of the world's seven leading industrialized democracies, said he doubted there is a need for government intervention to prop up the dollar.
Economists said Wednesday the Fed realized that raising short-term interest rates for the fifth time this year would be far from a sure cure for the dollar's woes.
``The dollar usually doesn't influence their decisions,'' said Michael Evans of Evans Economics Inc., a consulting service based in Boca Raton, Fla. ``There's no guarantee higher rates would boost the dollar. They've tightened four times, and it's gone down.''
``There's never any question about what the Fed's primary job is,'' said David Wyss of DRI-McGraw-Hill, a Lexington, Mass., forecasting service. ``It's taking care of the U.S. economy.''
In a series of four moves this year, the Fed increased the federal funds rate - the rate banks charge each other for overnight loans - from 3 percent to 4.25 percent. The increases reversed a five-year policy of lowering credit costs to stimulate the economy.
The most recent boost, on May 17, was accompanied by an increase in the discount rate, the interest the Fed charges for direct loans to banks. That rate stands at 3.5 percent, up from 3 percent, where it had been for nearly two years.
The increases have helped push up borrowing costs for millions of Americans for everything from home mortgages and automobile purchases to short-term business loans.
Fed officials insisted they are not trying to choke off economic expansion, but are only seeking a level where rates neither spur growth nor retard it.
Lately, there has been considerable evidence suggesting economic expansion is slowing to a level the Fed would regard as acceptable and non-inflationary.
That could change as early as Friday, some analysts said, when the Labor Department announces unemployment figures for June. If unemployment stays at 6 percent and there is a sizable increase in payrolls, some predicted that could be enough to trigger another rate increase.
``They're keeping all the doors open in this announcement,'' said Robert Dederick of Northern Trust Co. in Chicago. ``There's no signal for what lies ahead. They're keeping their cards right up against their chest.''
The Federal Open Market Committee, composed of Fed board members in Washington and Fed regional bank presidents, met in private and no details of its deliberations were announced. The committee next meets Aug. 16.
Analysts speculated that the committee may have given Federal Reserve Chairman Alan Greenspan explicit authority to move rates higher himself before the next meeting if economic growth appears too rapid.
by CNB