FED OFFICIAL DEFENDS INTERST RATE HIKES

The head of the Federal Reserve Bank of St. Louis Friday defended his agency's string of short-term interest rate hikes, contending they will lead to "maximum, sustainable economic growth."

Thomas Melzer, president and chief executive officer of the reserve bank -- one of 12 such regional facilities in the nation -- spoke at the Southeast Missouri University Foundation's 11th annual Copper Dome dinner. About 500 of the school's major contributors attended the event at the Show Me Center.

Critics have said the Federal Reserve raised interest rates because of unwarranted fears of inflation. But Melzer said the agency acted properly in raising short-term rates, insisting that it "dampened inflation expectations."

He said the nation experienced rapid economic growth last fall and winter, which fueled the fear of inflation on the part of investors.

Melzer said the Federal Reserve "for some time had been in a very accommodating policy stance" in terms of interest rates.

"Accelerating inflation was a national conjecture on the part of market participants," he said.

Melzer said the fear of inflation may have also reflected worry of investors over the future of the Federal Reserve.

There were proposals in Congress last year that could have made the agency more susceptible to political control and affected the Fed's ability to hold the line on inflation, he said.

Long-term interest rates had begun to rise even before the Fed began raising short-term rates in February, Melzer said.

Since the series of hikes in short-term rates, long-term interest rates have declined, he pointed out.

A low-inflation policy, he said, is good for economic growth.

"The main contribution that the Fed can make to the economy in the long run is to keep inflation low and inflation uncertainty to a minimum," said Melzer.

Robert Dickemper of San Antonio, Texas, chairman of the university foundation's board of directors, praised the school's financial supporters.

He said that more than 2,000 members of the Copper Dome Society have already contributed more than $3 million to the university this year. The foundation now manages a $9.2 million endowment, an increase of 33 percent over last year.

Kala Stroup, Southeast's president, also praised the school's benefactors. "You make a difference," she said. "You put a smile on this president's face."

Speaking of the Ohio Valley Conference, in which Southeast's athletic teams compete, Stroup said, "We lead the conference in fan support and friend support."

Stroup said the Copper Dome members have contributed greatly financially to both the school's athletic and academic programs. "You make a real difference in the quality of this institution."

The university president, who confessed to "bragging" about Southeast, used the occasion to push for passage of the $250 million bond issue on the Aug. 2 election ballot. The statewide bond issue includes $12.5 million for construction of a new College of Business building at Southeast.

Stroup said the business building is one of the few academic buildings in the state on the list of improvements that would be funded with the bond issue money.

Stroup said university officials began planning for the business building at least six years ago.