How Today's Likely Hike by Fed Will Affect the Wylies

ROB WYLIE wants to replace the leaky gutters on his fix-me-up farmhouse near Hartford, Conn.

Three hundred miles south, at a meeting in a posh Washington conference room, the Federal Reserve will make a decision today that may determine if he can do it. The Fed's policy arm is expected to hike interest rates at its mid-November meeting. The only puzzle: how much.

Most economists are looking for a half- point increase in short-term rates, which would be the sixth such move this year by the central bank to prevent a rebound in inflation. Many on Wall Street agree a hike is needed to slow an economy that grew at a 3.4 percent annual rate last quarter. But others believe the Fed may be going too far - and could stifle the economy.

The outcome holds implications for President Clinton in his next two years in office. It will also affect the Wylies and millions of people like them.

Mr. Wylie and his wife, Jane, who have an adjustable-rate mortgage and carry a credit-card balance, have already received notice that their mortgage rate will jump by 1 percentage point next year: a reflection of five similar hikes since February.

When the new rates kick in, Wylie says, they stand to pay at least $140 more per month on their mortgage alone.

``That's not not going to severely affect our lifestyle, but it means we won't be able to put as much away for our daughter Sarah's college fund, and we won't be able to make some necessary improvements on our home,'' Wylie says.

Homeowners with mortgages are not the only consumers affected by the rate hikes. Rising interest rates push up the amount that consumers must pay to finance big-ticket items like homes, cars, and refrigerators.

``A rate hike will have a profound effect on whether or not people buy homes,'' says Peter Brotchie, president of Union Trust Mortgage Co. in Lynnfield, Mass. ``The real estate market is flat already, so I'm hoping it won't happen.'' In their concern that the economy may be expanding too fast, the Fed has jacked up the federal funds rate - the interest banks charge one another on overnight loans - from 3 percent in February to 4.75 percent.

Yet the near-certainty of an increase today has already pushed rates up to their probable perch of 5.25 percent. If the half point hike goes through, this rate will likely hold, though some economists say the increase could be as high as 1 percent.

``The fed is being aggressive,'' says David Wyss, an economist at DRI/McGraw Hill. ``A lot of people see the economy slowing down, and there is the real risk that they are going too far.''

Reports last week showed the second consecutive monthly decline in producer prices, a sign that inflation is under control. Yet some factors, like last quarter's growth rate and increasing construction and factory activity, may indicate that the economy is a little too rambunctious.

``The rate hike is bad news for consumers in the short run because they pay more money,'' says Mr. Wyss. ``But if the Fed has it right, what they're doing is reasonable. A rise in inflation would be worse for consumers than the pain right now.''

Not all is bad

Stephen Brobeck, executive director of the Consumer Federation of America, says over half a trillion dollars in consumer debt is tied to adjustable rates: So for every 1 percentage point increase in rates, consumers pay an additional $5 billion.

Still, the news isn't all bad. Mr. Brobeck notes that federal rate hikes mean higher interest on savings accounts and certificates of deposit. Besides, Brobeck says, the Fed's track record over the past 10 years is impressive. ``Controlling inflation is an art, not a science,'' he argues. ``If this decision to raise rates is as effective as decisions in the last decade, consumers will benefit.''

Robert Brusca, chief economist at Nikko Securities Co. in New York, doesn't think the expected increase Tuesday will impact the average family much. ``Interest rates have already moved up in anticipation of this event,'' he says. ``It's not like this is something new the markets have to brace themselves for.''

Meanwhile in Hartford, Wylie says he will be paying a little more attention to his bills. ``It's like taxes,'' he says. ``I don't mind paying more if it's for a good cause, but I don't think the Fed has made that strong of a case.''