Democrats Lobby Against Interest Rate Hike

A group of House Democrats beseeched the Federal Reserve to refrain from raising interest rates again, contending the central bank ran the risk of killing the economic recovery.

As Fed policy-makers were beginning two days of deliberations on interest rates, more than 20 liberal and conservative Democrats called a news conference Tuesday to urge Federal Reserve Chairman Alan Greenspan and his colleagues not to raise rates for a seventh time in a year.

“Don’t do it, Mr. Greenspan. Leave interest rates alone,” said Rep. David Bonior, D-Mich., the assistant Democratic leader. “If we raise interest rates again, it will be like throwing a bucket of ice water on the U.S. economy.”

The Democrats complained that the Fed’s rate increases were already hurting such critical sectors of the U.S. economy as housing and autos.

Rep. George Miller, D-Calif., said the short-term increases imposed by the Fed had pushed up mortgage rates from 6.97 percent a year ago to 9.05 percent today, raising the monthly payment on a $100,000 mortgage from $663 to $808. He said a jump of this magnitude priced many first-time buyers out of the market.

“We want the Fed to give recent interest rates more time to work before imposing an additional increase that could overchill the economy nine to 10 months down the road,” Miller said.

While the Fed’s actions were drawing fire in Congress, private economists said they believed the central bank would announce a seventh increase today.

Many analysts were forecasting that the Fed would increase both the federal-funds rate - the interest banks charge each other - and the discount rate, which the Fed charges for direct loans, by one-half percentage point. These rate were expected to trigger an immediate increase in commercial banks’ prime lending rate, the benchmark on many business and consumer loans.

Rep. Barney Frank, D-Mass., said higher interest rates in this country were a contributing factor to the Mexican currency crisis and this problem would only be made worse by another Fed rate increase this week.

“Alan Greenspan is a very nice man, but he is a rotten neighbor,” Frank said.

At an appearance before the Senate Banking Committee, Greenspan was asked by Sen. Paul Sarbanes, D-Md., whether the U.S. turn toward higher interest rates had a role in precipitating the crisis in Mexico.

Greenspan replied, “I think it is correct to say some part of the withdrawal of funds from Mexico relates to higher U.S. interest rates. … As best we can judge it was a very small part of the problem. … There are always secondary consequences which you wish did not happen.”

In addition to the congressional criticism, Jerry Jasinowski, president of the National Association of Manufacturers, urged the Fed to delay any further increases.

“There is little evidence of inflation and the economy is slowing down,” he said in a statement. “It doesn’t make sense to raise interest rates again at the current time.”