Fed Survey Shows Economic Growth, Raising Likelihood of a Rate Increase

By Seiberg, Jaret | American Banker, November 3, 1994 | Go to article overview
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Fed Survey Shows Economic Growth, Raising Likelihood of a Rate Increase


Seiberg, Jaret, American Banker


WASHINGTON -- The Federal Reserve Board reported on Wednesday that economic activity increased during the past six weeks, leaving many market watchers convinced that significant rate hikes are around the comer.

'I think the handwriting is on the wall," Norwest Corp. chief economist Sung Won Sohn said. "The Federal Open Market Committee is going to have to raise the rate at least 50 basis points."

"The Fed is going to raise rates higher," agreed James Bills, vice president and economist at Comerica Inc. "The open question is, will they be more aggressive than in the past and raise rates 75 or 100 basis points?"

The two economists based their forecast on the Beige Book, a report that tracks economic activity in each of the Fed's 12 districts. The report is published every six weeks, just before the meeting of its chief monetary policymaking committee, the Federal Open Market Committee.

The FOMC is scheduled to meet Nov. 15.

The Fed reported in the Beige Book that economic activity remained strong, with signs of acceleration in all regions of the country except New York.

Consumer spending was up in most areas, led by "very strong" auto sales.

Loan demand advanced at a "healthy" pace, with commercial real estate activity reporting the most gains. Single-family construction, however, fell across the Country.

Mr. Bills said his biggest worry is a line in the report stating that labor markets are tightening.

"If wages start accelerating in any meaningful way, the Fed will have to hit the brakes very hard, and that could lead to much higher rates than most expect," Mr.

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