Big Banks Increase Prime Rate to 10 1/2% --- Half-Point Rise Puts Fee At Highest in 3 1/2 Years; Some See Further Boosts
Most of the nation's largest banks raised their prime lending rate by half a percentage point to 10 1/2%, the highest in about 3 1/2 years.</br></br>Further increases in the prime and other short-term interest rates are likely over the next few months, many bankers and investment managers predict. They expect the Federal Reserve to tighten credit again soon in an effort to slow economic growth, restrain inflation and support the dollar.</br></br>Even if rates do rise, that probably won't stop the six-year-old economic expansion anytime soon, analysts say. Most economists in several recent surveys predicted continued economic growth for at least another six months to a year. But investors may react to rising rates by selling stocks and long-term bonds.</br></br>A surge in short-term rates over the past three weeks already has prompted many investors to switch their funds into such short-term investments as six-month Treasury bills, which now yield more than 8 1/2%. That's only about 2/3 of a percentage point below 30-year Treasury bondsand it's nearly five percentage points higher than the dividend yield on the 500 stocks in the Standard & Poor's Corp. index.</br></br>Recent interviews with Fed officials suggest that the central bank has no immediate plans to tighten credit. Signs of some slowing in the economy, combined with a decline in money growth, have apparently persuaded a majority of Fed policy makers to hold policy steady and wait for further indications of the economy's direction.