Optimistic consumers shrug off interest hikes

The Federal Reserve has raised interest rates four times in the past seven months, but many Americans don't seem to care.

Consumer confidence and spending are at their highest levels on record. Low unemployment, rising personal income and a booming stock market have put more money in Americans' pockets, offsetting worries over rising rates.

As a result, the Fed's efforts to slow down economic growth as a way to fend off inflation haven't yet had a visible impact.

''It's just psychology. People think things are going well so they aren't reacting as quickly to these interest rate hikes as they would if they thought things were bad,'' said David Orr, an economist at First Union Corp. in Charlotte, N.C.

As expected, the Federal Reserve raised short-term rates another quarter-point Wednesday to 5.75 percent. It was the fourth increase since June.

Consumer optimism that has blunted the effect of the rate increases is directly tied to the availability of jobs, Orr said. It's no coincidence, he added, that consumer confidence is at a 30-year high at the same time unemployment is at a 30-year low.

''Everybody's enjoying the prosperity and not thinking about the future,'' said Herman Scott, 66, a retired FBI agent from Jonesboro, Ga. ''Everybody says, 'Hey, if I can get it, I'm going to get it.'''

The housing and automobile sectors both extremely sensitive to interest rate fluctuations have dismissed the recent spate of rate increases.

Housing construction rose 7.1 percent in December, ending the most successful year since 1986. New homes sales rose 4.5 percent in December, pushing the total for 1999 to an all-time record.

These increases came despite mortgage rates that now average 8.25 percent, the highest since the summer of 1996. Last June, before the Fed started raising rates, the average mortgage was 7.63 percent.

Meanwhile, car sales in the United States accelerated in January following last year's record sales of 16.9 million vehicles. The Michigan research firm Morgan & Co. said sales of cars and light trucks rose 10 percent during the month, for a projected annual rate of 17.8 million.

Commenting has been disabled for this item.