Manufacturers urge Fed to hold line on rates

September 25, 1994|By New York Times News Service

WASHINGTON -- The nation's manufacturers, declaring that their businesses are prospering and their hiring is up, urged the Federal Reserve yesterday not to raise interest rates again this year.

In taking this position shortly before a Federal Reserve meeting to consider another rate increase, the National Association of Manufacturers directly challenged a basic tenet of the central bank's policy.

While most Fed officials insist that rising inflation poses the greatest danger to the economy and should be prevented, even at the cost of an economic slowdown, the manufacturers take the opposite view. They even prefer a little inflation, which gives them leeway to raise prices.

The NAM passed no formal resolution at a three-day meeting here, attended by 115 chief executives of large and small companies, from giants such as Boeing and the Big Three automakers to small machine shops in Midwestern towns.

But the executives opposed higher rates in a poll taken at the meeting, part of the NAM's emerging effort to prevent another rate increase that might slow the economy and dampen its members' sales. In interviews, many of the manufacturing executives forcefully supported that view.

Summarizing the poll results at the final session yesterday, NAM President Jerry Jasinowski said, "The overwhelming majority believe that the Fed should hold interest rates at current levels or delay any further action until late this year or next year."

The manufacturers rarely come out so publicly or bluntly against a rate increase. They said that while the Federal Reserve's five rate increases since February had not been a problem, the next one could be because it would catch them just as their sales are expanding, mostly from the ripple effects of strong home construction and surging auto and truck sales.

"The issue is this: Have we actually or psychologically passed the break point where people say they cannot afford things any more because interest rates are too high?" said Stanley C. Gault, chairman of Goodyear Tire & Rubber Co. and a former chairman of the manufacturers' group. "Higher rates can create uncertainty, and this can get translated into procrastination and delay in making purchases."

Expectations on Wall Street of another interest rate increase -- either at a meeting of Federal Reserve policy-makers Tuesday, or at their next meeting, on Nov. 15 -- have played a role in the steady decline of stock prices in recent days, as well as the upward pressure on interest rates in the bond market.

The NAM is a leader among Washington lobbyists. It played a big role, for example, in persuading Congress to block President Clinton's health insurance proposals.

But while manufacturers account for nearly 30 percent of national economic activity, they have much less leverage with the Fed, an independent institution more insulated from political pressures than Congress.

Still, the manufacturers brought a powerful dissenting voice to a debate dominated until now by bondholders and bankers -- a faction the Fed has traditionally sided with.

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