Newspaper article The Christian Science Monitor

No Slowing Yet, So Fed May Hit Harder ; Leery of Inflation, Board May Raise Interest Rates Tuesday a Half Point for First Time in Five Years

Newspaper article The Christian Science Monitor

No Slowing Yet, So Fed May Hit Harder ; Leery of Inflation, Board May Raise Interest Rates Tuesday a Half Point for First Time in Five Years

Article excerpt

In a rare stance, members of the powerful Federal Reserve now seem unanimous about what to do with interest rates.

Raise them - again.

As the Fed meets tomorrow, the only question is whether they will go up by a quarter percentage point or a half percentage point.

A half-percent increase would be significant. It would show that the Fed governors have moved away from their incremental approach to trying to slow the economy - and thus ward off inflation - and have adopted a more aggressive strategy.

It would mark the first time since 1995 that the Central Bank has changed rates by more than a quarter percent. A bigger hike will push home mortgages closer to the double-digit mark and affect stock markets around the world.

The one unknown: Will any increase be enough to slow the V-8 US economy?

"We could see a rate rise every FOMC [Federal Open Market Committee] meeting this year and into next year - except maybe October, just before the elections," says Harold Malmgren, a Washington economist.

The Fed wants the American economic engine running at a 3.5 to 4 percent growth rate, not the 5.4 percent annual rate of the first three months of 2000. What it does Tuesday afternoon to try to retard growth will be of interest around the world.

The value of stocks and bonds in many nations could rise or fall by billions if not trillions in a few minutes. Such currencies as the 11-nation euro and the Japanese yen could climb or tumble in value against the dollar by significant amounts.

Even so, when the news does come at approximately 2:15 p.m. in the press room of the Treasury Department, there will be no press conference. Fed Chairman Alan Greenspan, often called the world's most powerful economic leader, will not say boo. Reporters will simply scramble for a one-page release transmitted several blocks from the marbled palace of the Fed, where the 12 voting governors and regional bank presidents make the decision.

In London, J. Paul Horne, a European economist with Salomon Smith Barney Inc., a brokerage house, will be sitting at a desk, waiting for the news to flash across the screen. It will be 7:15 p.m. there. In Frankfurt, Jrgen Pfister, director of economic research at Commerzbank, will hang around the office for the news.

Why the worldwide interest?

The US, Mr. Horne notes, has an "overpowering economy." It amounts to 20 percent of world output. It has been attracting a flood of portfolio investments from Europe, seeking higher interest rates, wanting to participate in the American boom.

The hike felt around the world

In recent days and weeks, the euro and European stock markets have tracked the mood on Wall Street. So have markets in Japan and elsewhere. In the last two or three weeks, Wall Street gradually became convinced the Fed would crack down. …

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