WATCHING RATES RISE

Interest rates got another boost last week when the Federal Reserve approved an increase of three-quarters of a percentage point. The nation's central bank said the increase -- the sixth this year and the largest since 1981 -- was needed to slow a surging economy and prevent inflation.

Anyone who remembers the early 1980s is likely to try to understand the Federal Reserves actions. At that time interest rates were higher than they had ever been since the Civil War. Inflation was rising wildly, prompting then-President Ford to launch a national campaign to restore some semblance of order. Remember the WIN (Whip Inflation Now) buttons?

In 1993 interest rates dipped very low, which was good news for many sectors of the economy but particularly for home building and sales of existing houses. Mortgage rates dropped several percentage points, which meant buyers were able to save thousands of dollars on their mortgages. Some careful shoppers were able to find adjustable-rate mortgages below 4 percent, and homeowners who refinanced their mortgages saw their monthly house payments drop substantially.

While the low interest rates were hailed as good news for many, there was a down side too. Many Americans who live on fixed incomes watched as their investments in certificates of deposit and other interest-bearing accounts produced less and less spendable income. Dipping into the principal that had been socked away for retirement suddenly became a necessity far too often.

While interest on savings hasn't reached the double digits of the 1980s, retired Americans are viewing the Federal Reserve's actions with a sigh of relief. Now their investments will produce more interest earnings as rates on certificates of deposit have nearly doubled in the past year.

There is considerable skepticism about the Federal Reserve's string of interest-rate increases this year. Consumer prices this year are rising at a modest 2.8 percent, and some politicians question the need for the stringent controls. But Federal Reserve officials respond by saying they are looking to the future, as much as a year out, and believe their actions now will prevent a wild economic swing in either direction.

No one wants a recession any more than rampant inflation. The next few months will be critical as the Federal Reserve's actions are closely monitored. The nation's economic health will be a critical issue as the 1996 presidential race starts to heat up.