Federal Reserve Ready to Lower Interest Rates / Say Economists, Analysts

By Tom Raum, Ap | THE JOURNAL RECORD, July 1, 1986 | Go to article overview
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Federal Reserve Ready to Lower Interest Rates / Say Economists, Analysts


Tom Raum, Ap, THE JOURNAL RECORD


WASHINGTON (AP) - The Federal Reserve Board will move within the next few days to lower interest rates for the third time this year in an e ffort to stimulate a slumping U.S. economy, economists and analysts predicted Wednesday.

""It may be by a full percentage point. At this stage, with everyone expecting it, a half percentage point would be anticlimactic,'' said Lawrence Chimerine, president of Chase Econometrics of BalaCynwyd, Pa.

Analysts appeared in near-unity that a cut in the bellwether ""discount'' rate, which the Fed charges for direct loans to member banks, from the current 6.5 percent to 6 percent or less is now imminent. Changes in the discount rate usually lead to corresponding interest rate movement throughout the economy.

""There is a 50-50 chance the Fed will do it by the end of this week, a 75 percent change by the end of next week and a 100 percent chance by the end of the following week,'' said Michael Evans, head of an economic forecasting service here. ""The only thing holding them up may be just that everyone expects the discount rate cut.''

Speculation of an impending interest rate cut came as Fed policymakers finished a two-day closed-door meeting to chart U.S. monetary policy for the second six months of 1986.

And it comes as the Fed has been under increasing pressure from Congress and the White House to cut the discount rate.

Late last week, Senate Majority Leader Bob Dole, R-Kan., publicly prodded the Fed to take such a move. And as recently as Monday, White House chief of staff Donald T. Regan put the Reagan administration on record as favoring such a cut.

Observers said that, beyond the talked-about cut in the Fed's discount rate, the central bank might take other steps to ease credit policy - including a modest reduction in the federal funds rate, now at 6.75 percent.

This is the interest rate that banks charge other banks for short-term purchases of government securities to meet a bank's requirement for cash reserves against deposits.

""All attention is focused on the discount rate. But, given the cross-currents in the Federal Reserve, reducing the discount rate is not the only way to bring about a relaxation in monetary policy,'' said Allen Sinai, chief economist for Shearson Lehman Bros.

Sinai said a further dose of lower interest rates seems necessary to stimulate growth, not just in the United States but throughout the industrialized world.

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