WASHINGTON - Federal Reserve officials are concerned about the rise in long bond rates and are keeping a close eye on the rebounding economy, Federal Reserve Board Vice Chairman David Mullins said yesterday.

"We seem to have a lot of growth out there, which is making us a bit nervous," Mullins told a conference sponsored by the American Enterprise Institute.

The yield on the Treasury 30-year bond, which yesterday was trading around 6.17%, has increased by 40 basis points since October, Mullins said.

"I think the increase in long bond rates needs to be of special concern," he said. "If inflation starts moving, I think, and long rates move up, this hurts not only long-term growth prospects but it likely hurts near-term growth prospects. A favorable capital market environment is the engine of this expansion, so it's in everyone's interest to make sure that doesn't happen."

Many analysts believe Fed officials will have to start tightening credit in a few months if the economy continues to crackle and stirs inflationary pressures. Real gross domestic product is widely expected to increase at an annual rate of 4% or so in the current quarter.

However, Fed officials are also expected to wait until they see what happens to growth after the beginning of the year before they consider any move to raise short-term rates. Acting quickly to head off any rise in inflation could make the Fed's job easier and help prevent a big rise in long rates.

Mullins signaled that Fed officials are in a critical holding pattern. "This is an important time for monetary policy. It seems quiet out there, but we're at an important crossroads," he said.

Besides the rise in long bond rates, "there are some other early warning signs that have already been twitching," Mullins said. He cited [Illegible Word] growth in M 1, the narrow measure of money that includes currency and checkable deposits at banks. And, he went on, "commodity prices, except for oil, have started moving again."

Mullins also stressed that real growth has averaged 3% for the last seven quarters, and above that rate in the last three quarters. Many economists believe that over the long term, gross domestic product cannot rise more than 2 1/2% before inflationary pressures start to build.

Recent inflation statistics have been encouraging to bond market participants, and analysts expect more good news with the release of the November reports on producer and consumer prices due out later this week. Mullins noted that the consumer price index has advanced at a cool annual rate of 1.8% in the last six months, and that prices excluding food and energy were up only 2.1%.

"There's no compelling evidence at this time that inflationary pressures are building," Mullins told the conference. But, he said, Fed officials have been pursuing "an accommodative stance" and do not want to repeat the events of the late 1980s, when critics say the central bank waited too long to tighten monetary policy and then had to play catch-up in the bond market.

"I think the Fed would prefer to tighten earlier rather than later this time," said David Berson, chief economist for Federal National Mortgage Association, who is looking for short-term rates to rise about 100 basis points next year.

Mullins was not entirely upbeat about prospects for economic growth. He said the economy is still struggling to overcome a tight federal budget, defense cutbacks, corporate cutbacks in employment, and a weak trade sector. "I do think that contractionary influences limit the possibility of overly robust growth," he told the conference.

Speaking at a Chicago Board of Trade economic outlook press briefing yesterday, Federal Reserve Board Governor Edward W. Kelley was optimistic about the progress the U.S. has made in restructuring its economy.

"I don't see any reason to believe the expansion we are in is going to come to a early end," Kelley said. "I think with the restructuring going on, there is every possibility this expansion we're in now could be rather long-lived."

Kelley said he shares the "strong consensus" that the U.S. will continue the same moderate growth next year that it has been experiencing for some time. He said it was too early to make projections about the 1995 economy.

Separately, purchasing managers said in a semiannual survey released yesterday that they expect prices on average to rise only 2.1% in 1994, about the same as what was forecast for this year. The survey by the National Association of Purchasing Managers said labor and benefit costs are expected to rise 3.2%.

However, members said they are not done laying off workers during the first half of the year. Of those surveyed, 43.2% said they expect to reduce employment, while only 10.5% expect to hire more workers. The remaining 46.3% indicated no change. Karen Pierog contributed to this article.

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