THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Thursday, February 2, 1995 TAG: 9502020435
SECTION: FRONT PAGE: A1 EDITION: FINAL
SOURCE: BY JOE COCCARO, STAFF WRITER
LENGTH: Short : 47 lines
Hold onto your wallets, it has happened again.
In its zeal to cool off the economy, the Federal Reserve raised short-term interest rates Wednesday for the seventh time in a year.
Two benchmark rates were notched up half a percentage point to their highest levels since 1991.
The federal funds rate, which banks charge each other on overnight loans, was increased from 5.5 percent to 6.0 percent. The discount rate, the interest the Fed charges on direct loans to banks, is being boosted from 4.75 percent to 5.25 percent.
Banks almost always pass these increases off to borrowers.
Expect to pay more for credit card purchases, home equity loans and possibly automobile loans. Adjustable rate mortgages will likely spike a bit, but those about to take out 15- and 30-year fixed rate loans shouldn't get stung too badly.
The Fed's action mostly impacts short-term credit costs. Most major banks will almost assuredly bump up their prime lending rates to 9 percent. Some did so Wednesday. That's bad news for businesses, which are often loaned money at prime.
Twelve months ago, the prime was 6 percent. Low interest rates combined with a fizzling recession for a economically robust 1994. Employment, manufacturing and other key measures of economic performance soared. As a result, concerns over inflation began to mount.
The Fed began acting on those concerns Feb. 4, 1994, by initiating a series of interest rate increases. Many are hoping Wednesday's hike will be Fed's last one for a while.
Fed Chairman Alan Greenspan has come under increasing fire. Some accuse him of overreacting. Many regions of the country with slow growth fear the rate increases will do more harm than good.
Reactions in Hampton Roads have been mixed. The region had modest growth last year and has trailed the national average in some economic categories. Some local economists say the increases shouldn't cause much damage. Others say certain rate-sensitive industries here, like real estate, could suffer.
KEYWORDS: ECONOMY INTEREST RATES by CNB