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Survey: Rate hike certain
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March 24, 1997: 3:36 p.m. ET
CNNfn poll of economists shows consensus that the Fed is going to act
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NEW YORK (CNNfn) - The Fed's Open Market Committee will increase short-term interest rates at its meeting on Tuesday. That, at least, is the opinion of 18 of 20 economists surveyed by CNNfn.
The 18 are also pretty sure about how much rates will rise: They say Federal Reserve Board Chairman Alan Greenspan and his colleagues will boost the Federal Funds Rate -- the amount banks charge other banks for overnight loans -- from 5.25 percent to 5.5 percent.
Only two economists said they thinks rates will not be changed.
Most of the economists contacted said Greenspan's recent comments have set out the Fed's intentions quite clearly. The result is that if the Fed does not boost rates it could lose credibility in the bond market.
"If we don't get a firming, then Greenspan ought to get an Academy Award," said William Griggs, managing director of Griggs & Santow.
If the Fed does raise rates, it will mark the first change since Jan. 31, 1996, when the Fed Funds Rate was cut from 5.5 percent to 5.25 percent.
Such a move by the Fed would also mark a significant change in monetary policy, making good on Greenspan's warning about the need to execute a preemptive strike against inflation in a rapidly growing economy where price pressures remain notably absent.
Although many on Wall Street are cringing at the thought of a rate hike, economists said a tightening by the Fed might not be as negative for the bond market as some have predicted. The market, which moves on inflationary expectations, could get a lift from the picture of a tough and vigilant central bank. That would mean long-term rates could slip some, even though the short-term rates controlled directly by the Fed go up.
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