WASHINGTON (AP) _ A big build-up in business inventories
contributed to healthy economic growth this spring, eliciting
cheers from the Clinton administration and investors.
The gross domestic product, the total of all goods and
services produced in the United States, grew at a 3.7 percent
annual rate in the second quarter this year, the Commerce
Department said Friday.
The news prompted a strong rally on the stock and bond
markets, and some economists said it gives the Federal Reserve
little reason to raise short-term interest rates again any time
"It's just what the doctor ordered," said Allen Sinai of
Lehman Brothers Inc. The underlying trend is for an economy
growing at a rate of about 2.5 percent, he said, and if that
holds, "This expansion will go on and on and on."
But some analysts cautioned that, because inventory
accumulation is outstripping consumer demand, that could mean a
slowdown through the balance of 1994.
For now, the news was welcomed in nearly all quarters.
"The U.S. economy continues to turn in a fine performance. So
far, everything we've seen in 1994 confirms our forecast of a
sustainable investment-led expansion with low inflation," said
Laura Tyson, who heads President Clinton's Council of Economic
Commerce Secretary Ron Brown, joining her at a White House
news conference, conceded the public may not be getting the
Judging by recent polls, "There certainly is a perception
problem. I don't think that this administration has gotten the
credit that it should be getting," he said.
An index of inflation tied to the GDP rose a moderate 2.9
percent in the second quarter, matching the first three months of
Federal Reserve Chairman Alan Greenspan warned Congress last
week that interest rates may have to rise to ensure inflation
remains in check. Restraining inflation once it is under way is a
tougher task that could have damaging consequences, he stressed.
In four moves since February, the Fed has pushed rates from 3
percent to 4.25 percent for overnight loans between banks. It
also has boosted its discount rate charged to member banks from 3
percent to 3.5 percent.
That has translated into higher borrowing costs for consumers
and businesses as banks lifted the prime rate, a benchmark for
many types of loans, from 6 percent to 7.25 percent.
Federal Reserve policy makers next meet Aug. …