Economists, Money Managers Predict Rising Interest Rates as Economy Grows
NEW YORK -- Expect rising interest rates this spring as the economy expands at a brisk pace.</br></br>That's the message from a growing number of economists and investment managers amid concern about rapid money-supply growth recently. Some predict the Federal Reserve System will tighten its credit grip within the next few months in an effort to restrain the money supply and remind investors of its determination to combat inflation.</br></br>Strong economic growth will encourage businesses and consumers to increase their borrowing, adding to pressures for higher rates, analysts say. "I expect rates to move up over the next few months because demands for credit will increase as the economy strengthens and because the Fed probably will find it necessary to become more restrictive," says Leif H. Olsen, who heads Citicorp Information Services, a unit of Citicorp.</br></br>This view attracted more supporters last week after Paul Volcker, chairman of the Federal Reserve Board, outlined the central bank's money-supply and economic forecasts at a Senate Banking Committee session. Although Mr. Volcker didn't make any forecasts about interest rates or Fed credit policy, many Fed-watchers interpreted his remarks to mean that the board eventually will adopt a tougher credit policy. Other Fed officials have declined to elaborate. Mr. Volcker is scheduled to testify again tomorrow at a House Banking subcommittee hearing.</br></br>"Market jitters about the Fed's intentions are likely to contribute to further near-term increases in both short- and long-term interest rates," said Henry Kaufman, chief economist of Salomon Brothers Inc. In the latest issue of his weekly publication, "Comments on Credit," Mr. Kaufman predicts that the federal funds rate "will drift up toward 9% before the end of March." The funds rate, which is the rate on reserves that banks lend one another overnight, has been hovering around 8 1/2% recently.