WASHINGTON - Wall Street analysts anticipating a move by the Federal Reserve to raise interest rates may have to wait a while longer.
The economy's surge in the final three months of the year has some analysts concluding that when members of the Federal Open Market Committee met Dec. 21, they abandoned their neutral stance on short-term interest rates for a policy directive leaning toward higher rates.
A shift by the 12-member panel would not require the Fed to act right away, but it would set the stage for higher rates as a solid recovery takes hold in 1994.
Still, not everyone thinks Fed officials are in a hurry to fulfill bond market expectations.
One reason is politics. President Clinton has said he sees no evidence of a pickup in inflation that would justify a Fed tightening, and Treasury Secretary Lloyd Bentsen is on record urging officials to sit still at least for the first three months of 1994.
Moreover, Fed Chairman Alan Greenspan is battling the administration and Congress over plans to create a single bank regulator. The Fed is also fighting off proposals by House Banking Committee Chairman Henry Gonzalez, D-Tex., to release transcripts of the Open Market Committee's meeting.
"I don't ever recall when I've seen such intense pressure coming from both the Congress and the administration," says Les Alperstein, research director for Natwest Washington Analysis. "Obviously the administration is making clear that they don't want interest rates to rise."
Mr. Alperstein says his reading of recent comments by Fed officials is that they expect the economy to slow in the first quarter. "We're clearly getting a spurt of economic activity, and we're on a higher growth plane, but there just isn't an inflation concern," he says. "The Fed feels that first-quarter growth will moderate to 3%, and they don't want to jump the gun."
Mr. Alperstein believes that members of the Open Market Committee are going to wait for their Feb. 3-4 meeting before any shift in direction. That would give them time to see some economic statistics for the beginning of the year.
A December shift in policy would provide headlines about a hard-line Fed stance in advance of Mr. Greenspan's testimony to Congress in February. Waiting buys time and allows Mr. Greenspan to decide how he wants to shade his economic commentary.
Any move by the 12-member Open Market Committee to raise rates could spark some rough internal debate in the committee, given that at least six members have never participated in a Fed tightening. The last time the central bank pushed rates higher was in 1988 and early 1989.
It was just this year and last that William McDonough, J. Alfred Broaddus, and Jerry L. Jordan joined the committee. They are the presidents, of the New York, Richmond, and Cleveland Federal Reserve banks, respectively.
Board members Lawrence Lindsey and Susan Phillips came to the Fed in 1991, and Vice Chairman David Mullins joined in May, 1990.
In addition, President Clinton is preparing to name a replacement for Wayne Angell, whose term on the board expires at the end of January.
A Matter of Timing
Most analysts still expect Fed policymakers to raise rates when Mr. Greenspan can convince, them the time is right.
"It would be hard for me to believe they would be reluctant to tighten monetary policy just because they haven't done it before," says Lyle Gramley, consulting economist to the Mortgage Bankers Association. He adds that some of the new committee members - notably, Mr. Broaddus and Mr. Jordan - have reputations for talking tough on inflation.
Mr. Gramley believes Fed officials did opt this month for a tilt in policy favoring higher rates. "The economy looks quite strong," he says, "and a prudent course of action for a central bank under these circumstances would be to prepare in case an action is necessary."
