Further U.S. rate rises needed?

Press, 16 August 1988, Page 25

Further U.S. rate rises needed?

NZPA-Reuter New York The rise in U.S. interest rates should slow the economy in the months ahead, but economists believe rates will have to rise further to achieve the U.S. central bank’s goal of limiting inflation.

U.S. banks raised their prime lending rates by a halfpoint last Thursday to 10 per cent. It was the second boost in less than a month and came two days after the Federal Reserve Board increased its discount rate by a half point, to 6.5 per cent. In spite of these and other rate gains, the Fed is expected to raise rates some more to slow economic

growth enough to cool the inflationary spiral. "The Fed is going to have to tighten further before it moderates growth down to the two per cent to 2.5 per cent range they would like,” said Michael Penzer, senior economist at Bank of America. Growth in the first half of this year averaged 3.25 per cent. Economists said the latest round of rate increases will probably take several months to rein in the economy, which entered the third quarter at a robust pace. The gains come on top of a steady rise in short-term rates since spring, when the Fed began manipulating the cost of money.