U.S. Appears to Be Allowing New Rise In Federal Funds Rate to Curb Inflation
Evidence is growing that the Federal Reserve is allowing a key short-term interest rate to rise slightly further in its effort to restrain inflationary pressures.</br></br>Economists also say several foreign central banks may be tightening credit soon. West Germany is expected to nudge short-term rates higher today, and some analysts say Japan and Britain also could raise rates.</br></br>In the U.S. bond market, prices of long-term Treasury issues slumped early in yesterday's session but rebounded in the afternoon to wind up about unchanged from Friday's levels. Municipal, corporate and mortgage-backed bonds also finished little changed.</br></br>In Washington, the Fed has indicated it is making no significant changes in policy. But an increase in the federal funds rate recently is said to suggest the Fed is willing to err slightly on the side of a tighter policy.</br></br>Federal Reserve actions in the money markets yesterday and late last week apparently convinced some analysts that the central bank is trying to push the federal funds rate up to about 7 1/2%. Earlier in the month, the rate on reserves that banks lend each other overnight was averaging around 7 3/8%.