ROANOKE TIMES 
                      Copyright (c) 1996, Roanoke Times

DATE: Wednesday, May 22, 1996                TAG: 9605220035
SECTION: BUSINESS                 PAGE: B-8  EDITION: METRO 
DATELINE: WASHINGTON
SOURCE: Associated Press 

FED HOLDS RATES ANALYSTS SAY ECONOMY FINE

Faced with an unusual amount of uncertainty about the economy's future course, tThe Federal Reserve decided against changing interest rates Tuesday.

The Federal Open Market Committee, made up of Fed board members and regional bank presidents, met behind closed doors for four hours to review the economy's performance.

Afterward, Fed officials announced the meeting had adjourned without any changes in rates. Financial markets, which had widely expected no rate changes, showed little reaction.

The Dow Jones industrial average, which had climbed to a record high on Monday after optimism about oil prices, was down slightly after the announcement, but economists attributed that to factors other than the Fed.

The Dow Jones industrial average closed down 12.56 at 5736.26.

Many private economists think the Fed's stay-the-course policy will remain in effect through the November election.

``As far as the Fed is concerned, this is the best of all economies. We are at full employment, and the inflation rate is pretty low,'' said David Wyss, an economist at DRI-McGraw Hill Inc. ``The economy is behaving itself, so why would they want to mess it up?''

After cutting the federal funds rate last July and again in December and January to stimulate economic growth, the Fed decided in March to hold rates unchanged as signs of a rebounding economy emerged.

The central bank's target for the federal funds rate, the interest that banks charge on overnight loans, has been at 5.25 percent since January.

A string of reports since that rate cut have shown the economy growing at a faster-than-expected clip, spawning fears of inflation on Wall Street.

Lyle Gramley, economic consultant at the Mortgage Bankers Association, said investors were correct to believe that the central bank will soon be forced to start raising rates. He predicted the first rate increase could occur at the next FOMC meeting, July 2-3.

But other analysts argued that inflation fears have been overblown and that the rise in long-term market rates that has already occurred this year will be enough to slow the economy to a more sustainable pace without any Fed action.

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