A matter of interest; how Indiana bankers feel about the Federal Reserve's rate increases.

• Author: Murphy, N. Scott

The Federal Reserve may have tightened its belt, but Indiana bankers don't think customers will have much trouble breathing.

Four times in four months, the Federal Reserve Board has increased the federal funds rate, the interest rate charged between banks for overnight loans. In January the rate was 3 percent. By May, the rate hit 4.25 percent. Plus, for the first time in five years, the Fed increased the discount rate--paid by banks for borrowing from the nation's 12 district Federal Reserve banks--from 3 percent to 3.5 Board Chairman Alan Greenspan hinted at the time that these were likely to be the Fed's final increases for now.

"We're not looking for rates to change much, at least for the rest of the summer," says Kevin Cecil, who in May succeeded the late W. Fred Hale as president and CEO at PNC Bank Indiana in New Albany. "Assuming that this inflation fear is going away, we look for a little softening of long-term rates like mortgages, but the prime and other short-term rates should stay where they are for the rest of this year."

But some analysts predict that the Fed could raise rates even further, maybe to 4.5 or 5 percent, especially if the Gross Domestic Product grows at rates surpassing 3 percent.

The Fed hopes to prevent runaway inflation as the country's economic recovery gathers steam. The higher the Fed's rates, the more expensive money is to borrow and as businesses and consumers borrow and use money less freely, the economy in theory inflates a bit more slowly. In an ideal world, the Fed will get the economy to grow "just right" (analysts call it the Fed's "Goldilocks" economy), growth the Fed claims is somewhere around 2.5 percent. The Fed, meanwhile, prevents higher inflation and a greater recession once the present "boom" runs its course.

Top-Performing Banks Ranked by 1993 Return on Assets Banks With Assets of $1 billion-plus BANK ONE INDIANAPOLIS Indianapolis 2.04 OLD NATIONAL BANK Evansville 1.43 CITIZENS NATIONAL BANK OF EVANSVILLE Evansville 1.32 HUNTINGTON NATIONAL BANK OF INDIANA Noblesville 1.28 FIRST OF AMERICA BANK--INDIANA Indianapolis 1.27 Banks With Assets of $500-999 million BANK ONE LAFAYETTE Lafayette 2.69 NBD BANK Elkhart 1.69 BANK ONE BLOOMINGTON Bloomington 1.60 BANK ONE MERRILLVILLE Gary 1.52 FIRST MERCHANTS BANK Muncie 1.41 Banks With Assets of $100-499 million BANK ONE CRAWFORDSVILLE Crawfordsville 2.02 PEOPLES BANK & TRUST Mount Vernon 1.95 FRANKLIN COUNTY NATIONAL BANK Brookville 1.89 BANK ONE RENSSELAER Rensselaer 1.87 FIFTH THIRD BANK OF SOUTHEASTERN INDIANA Greensburg 1.70 Banks With Assets of $50-99 million PEOPLES TRUST & STATE BANK Boonville 1.95 UNION BANK & TRUST North Vernon 1.88 ROCKVILLE NATIONAL BANK Rockville 1.86 BANK OF WESTERN INDIANA Covington 1.84 COLUMBUS BANK & TRUST Columbus 1.84 "It's incredibly important that inflation not get going again," says H. Lee Cooper, chairman at Citizens National...