Interest Rates Will Fall in Near Future In Spite of Dollar's Problems, Many Say
NEW YORK -- Interest rates are likely to move lower in coming months despite the woes of the U.S. dollar in the foreign exchange markets, according to many bankers and economists.</br></br>Although the dollar's recent weakness caught forecasters off guard, these analysts say the currency turmoil only will delay the move toward lower interest rates. They predict business activity will slow sharply this quarter, leaving the Federal Reserve System with little choice but to ease credit conditions further.</br></br>The Fed will reduce its discount rate to 5% by late March, many analysts contend. The discount rate, now 5 1/2%, is the fee the Fed charges on loans to banks and savings institutions.</br></br>"I still think we'll see a further decline in short-term interest rates, although not as immediately as I would have expected" just a few weeks ago, said Kathleen Cooper, senior vice president and chief economist at Security Pacific National Bank in Los Angeles. The economy is "far from robust," she said, adding that a discount rate cut is likely late this quarter or early in the second quarter.</br></br>The Commerce Department is scheduled to release Thursday its preliminary estimate of the economy's growth in last year's fourth quarter. Analysts generally estimate that the report will show the gross national product expanded at an annual rate of between 2.5% and 3%, after adjusting for inflation. That would be little changed from the third quarter's 2.8% pace.