Economists Fear That New Dose of Interest Rate Tonic Will Be Overkill
Economists and government officials are increasingly worried that in its efforts to restrain the U.S. economy's current boom, the Federal Reserve may boost interest rates so much that it produces a mild bust next year or in 1996.</br></br>The Fed, which has already raised interest rates six times this year in an unsuccessful attempt to cool the red-hot economy, could act again at a policy-making session today. But analysts said the central bank is more likely to wait until it meets next on Jan. 31.</br></br>Many analysts now predict that to curb the economy's robust growth, the Fed will have to provide such a harsh dose of interest rate medicine - raising short-term interest rates at least a percentage point on top of this year's increases of 2.5 percentage points - that it will eventually plunge the economy into recession.</br></br>"There is less and less chance of a soft landing and a higher and higher chance of the more traditional boom-and-bust cycle," said Sung Won Sohn, chief economist at Norwest Bank in Minneapolis.</br></br>In its latest forecast, Merrill Lynch & Co. said last week that strong economic growth in early 1995 could lead the Fed to raise rates "by more than we currently expect. In that case, the U.S. economy would probably decelerate more sharply by late 1995 and possibly into a recession in 1996."