The Federal Reserve apparently took a new set of steps to increase short-term interest rates today.
The consensus among money market analysts is that the central bank raised the target on its key federal funds rate from 11 1/4 percent to 11 3/8 percent.
Some analysts warned, however, that the Fed's actions weren't clear and that the target interest rate might still be 11 1/4 percent.
For its part, the Federal Reserve won't tell the nation what it is doing until 30 days after it has done it.
Even so, nearly all analysts agree that whether or not the Fed is tightening monetary policy, the record 12 1/4 percent prime rate will rise to 12 1/2 percent within a few days and could go as high as 13 percent within a month.
Despite sharply rising interest rates, business demand for credit has not slowed, and the price that banks pay for funds they lend to their customers continues to rise.
Analysts said that the Federal Reserve entered the market twice today, leaving the impression that it wanted to raise the federal funds rate from 11 percent to 11 3/8 percent.
The federal funds rate is the interest banks charge each other for overnight loans of excess reserves. When the Fed wants the rate to rise, it either can drain funds from the banqing system (by selling government securities) or wait until the rate rises to a certain level before adding funds to the system (which it does by buying government securities.)
Today the Fed allowed the federal funds rate to rise before it entered the market.
Lawrence Kudlow, chief economist for Bear Stearns and Co., noted that banks always run short of reserves during the first few days following long weekends such as Labor Day and, as they scramble to buy those reserves, they bid up the federal funds rate.
Kudlow said the Fed may have been reluctant to supply more reserves to the banking system until it was sure there was a large imbalance in the demand and supply of excess reserves.
"That's one explanation," Kudlow said, "The other is that, yes, the Fed did raise the federal funds target from 11 1/4 to 11 3/8 percent. But that judgment seems a little premature."
Whether the central bank actually tightened monetary policy today, it has been raising interest rates steadily for the last few weeks under its new chairman, Paul Volcker, in an attempt to make borrowing more expensive.
By so doing, the Fed hopes to slow the rate of growth of the money supply and, in turn, the rate of inflation.
Interest rates already have risen enough to guarantee a 12 3/4 percent to 13 percent prime rate, analysts said.
Although the federal funds rate was higher in 1974, the prime rate never rose above 12 percent because of political pressure from Washington.
But the Carter administration has criticized neither the Federal Reserve nor the banks in the latest round of rising rates, and analysts expect banks to keep on raising their prime rates in step with increases in costs and loan demand.
For example, certificates of deposit issued by banks to raise funds carried interest rates in the range of 11 1/2 percent today. Just a few weeks ago, certificates of deposit cost banks less than 11 percent.
Because the interest rates they pay for funds are a key cost, a bank raises the interest rates it charges customers when the bank's costs of obtaining funds rise.
The prime rate is the interest banks charge their best corporate customers for a short-term loan. Many loans are made at rates higher or lower than the prime.
Consumer loan rates, for example, aren't keyed to the prime rate except in the most indirect ways. During periods of high rates, consumers may pay less for a car loan than a major corporation pays for its short-term borrowings. But in periods of low rates, the consumer may pay more than the corporate customer.