Long-term rate fears as Fed meets

THE US Federal Reserve is unlikely to change interest rates when it meets today, but analysts believe the central bank's policymakers will be under intense pressure to do something to stop the steep rise in long-term mortgage rates.

Although most observers give Fed chairman Alan Greenspan credit for engineering the fall in US rates earlier this year to their lowest for a generation, sentiment has turned sharply against him in recent weeks.

After the last rate reduction in May, the bond markets turned around and pushed rates higher at almost record speed. The 30-year mortgage rate touched a low of 5.21% before shooting up to 6.43% less than a month later.

The Fed is now widely seen as having lost control of the interest rate market because of the conflicting signals given out by Greenspan over the past few weeks.

Earlier this year, he warned about the danger of deflation, 'a condition of falling prices' that helped to guide interest rates down.

However, markets were then disappointed that the last quarter-point cut was not larger and began to worry the Fed was anticipating a rise in rates as the US economy began to recover more strongly.