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DON'T EXPECT RATES TO DECLINE, FEDERAL RESERVE WATCHERS SAY

INTEREST RATES are down over the past few weeks, but still nowhere near as low as they were just a year ago. And here are a half-dozen reasons why rates won't be going back down to early-1988 levels very soon.

Even if inflation is under control, Federal Reserve Board Chairman Alan Greenspan is not the type to dramatically reverse direction on monetary policy.

"By his very nature, Greenspan is not inclined to lurching," says Peter Rona, head of IBJ Schroder Bank & Trust, a unit of Industrial Bank of Japan. Rona believes that, "if and when Greenspan decides to ease up on his year-long tight money policy, he'll do it in small doses." It was the Fed's tight monetary policy, of course, that drove interest rates higher in the first place and is keeping them there.

Inflation isn't yet under control, especially not worldwide. Prices are rising at levels that are unacceptable to the West Germans, Japanese, British and other important trading partners, so there is intense pressure from abroad to keep interest rates high. Over the past few weeks, experts have been arguing that the United States' inflation scare is over. But not everyone, and most importantly not the Federal Reserve, seems convinced of that.

"Inflation will remain high in the months ahead," says William Sullivan, director of money market research at Dean Witter Reynolds, who estimates that consumer prices will be up at an annual rate of 5 to 6 percent during the next three months. "There is some evidence that the core inflation rate may be picking up," adds Sullivan.

Inflation at the producer level in this country has been running at a 8.4 percent rate over the past few months, while prices on the consumer level are moving up at a 6.6 percent yearly rate.

Just last week, the government reported that durable goods orders rose a much-larger-than-expected 2.9 percent in April. If durable goods growth of that magnitude continues, or if other financial data confirms that the economy is still very strong, fears of inflation will be back before long.

The Fed is saying things, and more importantly doing things, that indicate it is not ready to ease monetary policy. On the same day last week that the Wall Street Journal was quoting government sources as saying some Fed officials have begun to consider easing credit to stem the dollar's surge," the Central Bank was draining reserves from the monetary system. That move, which keeps pressure on interest rates, anchored the federal funds rate at the lofty 9 3/4 percent level. The recent peak for fed funds was a tad higher at 9 7/8 percent a little more than a month ago.

"The Fed is standing still right now," says Francis Schott, chief economist at Equitable Life. "The Fed's aim is not to ease prematurely. Its action this week reflects a policy stance that in all likelihood was defined at the Open Market Committee meeting earlier this month."

Fed Vice Chairman Manuel Johnson also said last week that the Central Bank's main concern is domestic inflation, although he also did comment that "the recent inflation data looks encouraging." Johnson added that when the Fed sees the inflation situation getting better, it might ease.

Rates won't drop until there are sure signs that the U.S. economy is slipping into a recession. Only under a recession threat will the Fed risk pulling rates down quickly. "The economy doesn't appear to be in any danger of falling into a recession," says David Resler, chief economist at Nomura Securities.

The Fed is not going to drag interest rates down simply to get the dollar under control, as much as some White House officials may want it to. "The dollar ranks fourth, maybe third, in the Fed's policy parameters," says Kim Ruppert, a Fed watcher for MMS International, a consulting firm.

Ahead of the dollar on the Fed's list of worries, Ms. Ruppert says , are inflation, the strength of the economy and money supply growth. "I don't look for a major change in interest rates," she says.

And finally, even if the Fed does loosen, it will be a while before banks pass their savings along to borrowers.

Financial markets, of course, take heart whenever there is even the slightest sign that interest rates are declining. But if you are someone who doesn't give a hoot about the financial markets and just wants to borrow some money at a better rate, you might have a long wait.

Even if underlying interest rates do come down, banks are going to be slow passing the lower rate along to borrowers.

Allen Sinai, chief economist at the Boston Co., says that even though banks now would be justified in lowering their prime lending rate, it won't happen soon. "Banks have been under pressure and they will try to keep their profit margins up for as long as possible," says Sinai, adding that good-sized drops in rates won't be seen until much later this year.

There may be one temporary exception. Robert Heady of Bank Rate Monitor says 10 of the nation's top 100 banks reduced the rate on their 30-year fixed-rate mortgages below 10 percent last week.

Heady says this was partly in response to the bank's lower borrowing costs, but mostly was due to the fact that demand is very slow for mortgage loans. Heady thinks this trend will be reversed just as soon as there is a pickup in demand.

Some speculators have developed a macabre hobby: they try to find stocks that might benefit from the death or bad health of a company's top executive. To play this game, speculators essentially have to know three things -- the age of the various top guys at a company, how much stock they own and what ails them.

Executives like everyone else, of course, die from time to time and their company's stock sometimes goes up because of it. The theory behind the rise is that the exec's survivors might not be equipped to run the company, or just might want some money, so they'll try to sell the old guy's stock. This, in turn, could cause the acquisition of the entire company.

But outguessing the grim reaper is probably the hardest thing anyone -- including Wall Street -- could ever try to do. And speculators are proving to be very bad at this game.

Two years ago, speculators had pegged Occidental Petroleum, Amerada Hess Corp., MCA Corp., Petrie Stores and Sequa Corp. as some good bets to rise once their chairmen fell. But so far, Armand Hammer, Leon Hess, Lew Wasserman, Milton Petrie and Norman Alexander haven't obliged.

Anyone who bought these stocks in 1987 thinking they'd make a quick profit has unexpectedly ended up stuck in a long-term investment.

John Crudele is a financial columnist for the New York Post.

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