Short-term interest rates -- those on certificates of deposit of six months or less, money market deposit accounts, money market mutual funds, and savings accounts -- are at very low levels.

Though they vary somewhat according to investor demand, short-term rates are largely determined by the federal funds rate, which banks charge each other for interbank reserve lending.

Consistent Pattern

Since 1982, the Federal Reserve System has controlled the fed funds rate as part of its ongoing monetary operations.

In the past, the Fed has felt prompted to raise the federal funds are a certain length of time after the economy has recovered from recession.

In the 1981-82 recession, for example, the fed funds rate fell from a 19.1% peak at the end of the second quarter of 1981 to a 9.2% trough in the fourth quarter of 1982.

The first increase occurred only four months later, in March 1983. (That rise was short lived; the rate declined in the following month, before rising again.)

Looking Further Back

The trough for the previous recession was in the first quarter of 1975, when federal funds were at 6.24%.

The first increase occurred about six months later, when the Fed temporarily raised the rate in response to rapid economic growth.

In the 1969-70 recession, the trough was in the fourth quarter of 1970, when fed funds fell to 5.6%.

The Fed lowered the rate further until April 1971, but then raised it by almost a point and a half in the next five months.

At the trough of the 1961 recession -- the first quarter of that year -- federal funds were 2.54%. By July they were down to nearly 1%. During the next month, fed funds were increased almost a full percentage point, to 2%.

The historical record is uniform. In every recession since 1961, federal funds have increased at some time during the first year following the trough of the recession, and in most cases during the first six months.

Historical Anomaly

The last recession was therefore unique in several aspects, not the least being the behavior of fed funds.

The trough of the most recent recession was in the second quarter of 1991, when the rate was 5.78%.

Since then the federal funds rate, instead of increasing, has decreased, to its percent 3%.

In second quarter of 1992 - a year after the trough of the recession -- fed funds were 3.73%.

In the second quarter of 1993 -- a full two years after the end of the recession -- the rate stood at 3%.

If history is a useful guide, an increase in federal funds is long overdue. When it come, it will serve to ratchet upward other short-term interest rates.

Mr. Gamble is an associated professor of economics and finance at Fort Hays State University in Hays, Kan.

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