FED LIKELY TO HOLD LINE ON INTEREST.

Byline: Chris Sieroty Staff Writer

In the midst of rising gasoline prices, tight labor markets and spotty corporate earnings that have collectively knocked Wall Street woozy, it's time to have another meeting of the Federal Reserve's Open Market Committee.

Fed watchers predict that Alan Greenspan & Co. will leave the federal funds rate unchanged at 6.5 percent when they meet today in Washington, D.C.

``I don't see much chance of a rate increase,'' said Robert Heller, a former Federal Reserve Board governor. ``The economy is still strong, and rates are at a good level.''

There are several key factors that point to the Fed's leaving interest rates unchanged.

The Federal Reserve historically has been hesitant to raise interest rates during a presidential campaign, so as not to be accused by either party of trying to influence the political process.

``This close to a presidential election, I don't think they are going to fiddle with interest rates,'' said Robert Krol, a professor of economics at California State University, Northridge. ``I think they are going to wait and see what happens and decide at their next meeting on Nov. 15.''

In addition, the U.S. economy has changed during the third quarter, as the previous rate increases have started to take effect.

In the past 16 months, the Federal Reserve has raised short-term interest rates 1.75 percentage points. The Fed has not tinkered with rates at its past two meetings.

While the economy expanded at a 5.6 percent annual rate in the second quarter, analysts believe it then slowed a rate of 2.5 percent to 3 percent.

``We are going to have to wait and see if the growth rate slowed in the third quarter, but there are some signs of slowing,'' said Jack Kyser, chief economist with the Los Angeles Economic Development Corp.

One of those signs, according to Kyser, is consumer spending, which has slowed, rising only 3.1 percent in the second quarter, a decline of more than half from the first three months of the year.

Heller, now an executive vice president with Fair, Issac and Co., a San Rafael-based financial services firm, said, ``Higher oil prices have had an impact on the economy as consumers begin to curb their spending habits both here and abroad to pay their power and gasoline bills.''

The slowdown can also be attributed to a volatile stock market, in which investors have seen earlier gains slashed by anxiety over corporate profits. The major indices and averages were all lower at the end of September after average gains in August.

The Dow Jones industrial average fell 5 percent for the month, the Nasdaq composite index dropped 12.7 percent, and the Standard & Poor's 500 index slipped 5.4 percent.

``Having gotten the American economy where it wants it to be and with inflation under control,'' the Fed is unlikely to tip its hand today on any future rate hike or cut, Heller said.

However, at the end of the meeting, the Fed should have left interest rates unchanged, which will mean a continued reprieve for consumers as far as interest rate-sensitive loans are concerned, he said.