Raise Rates

The Federal Reserve chose inflation-fighting over public relations yesterday, raising its benchmark short-term interest rate by another quarter-point to 3.75 percent against suggestions that it pause in deference to Hurricane Katrina. The 9-1 vote to raise the federal funds target rate by another quarter percentage point to puts the key interest rate at its highest level since August 2001. In response to the Fed's action, commercial banks began raising their prime lending rates by a corresponding amount, to 6.75 percent.

To pause or not to pause, that is the question facing the Federal Reserve today. For 10 straight meetings, Chairman Alan Greenspan's central bank has gradually increased short-term interest rates in a campaign to bring them back to a more "neutral," or normal, level. Another increase had been expected before Hurricane Katrina devastated New Orleans and the Gulf Coast - and sent gasoline prices soaring and consumer confidence sinking. But now, the Fed finds itself besieged by pressure to wait until its Nov. 1 meeting before boosting interest rates again.

WASHINGTON -After the Sept. 11, 2001, terrorist attacks on New York and Washington, the Federal Reserve Board responded by slashing interest rates in a morale boost that spurred consumption. Since then, borrowing for both mortgages and consumer loans has soared to record highs amid a nationwide housing boom. Now the Fed's dilemma is this: Katrina might have slowed consumer spending, and another rate increase could compound that. But Katrina's spike in oil and gasoline prices also poses an inflationary risk that is usually countered through increases in the lending rate.

For the economy and financial markets, Hurricane Katrina may be remembered as a major tipping point. In the short term the storm may have tipped the Federal Reserve against further interest-rate increases, at least temporarily. It also may have convinced many consumers that energy prices aren't likely to come down much soon - which could have implications for how (and whether) they spend money in the near future and possibly beyond. Longer-term, Katrina could tip the scales on the nation's investment priorities, in favor of a greater focus on levees, bridges, roads and other infrastructure that have been allowed to deteriorate.

The price of a barrel of crude hit a record high this week. Housing prices continue to soar. Health care and insurance costs are up by double digits. Food is getting more expensive. Utility prices are jumping. Tuition costs are out of control. Sounds as if it might be time to dust off those circa 1974 "Whip Inflation Now" buttons that were once the laughingstock of the Ford administration, right? Actually, the Federal Reserve says not to worry - at least for now. The Fed raised a key interest rate another quarter-point yesterday and indicated that its more-than-yearlong campaign to contain inflation can continue at an unhurried pace.

WASHINGTON - Federal Reserve Chairman Alan Greenspan warned yesterday that new, liberal kinds of mortgages were helping to drive up home prices and fueling the danger of a sharp price decline. Greenspan said low-interest-rate mortgages also were contributing to what he termed "froth in some local markets." He said he continued to be bewildered by the decline in mortgage rates and other long-term interest rates even as the Fed is beginning the second year of its campaign to raise short-term rates.

The Federal Reserve angered traders and mystified markets yesterday by inexplicably forgetting to include a crucial phrase in its closely watched policy statement after it raised interest rates another quarter-point. The government's blunder sent a wrong signal to investors about the Fed's view of inflation trends, and it wasn't corrected for nearly two hours. During that time, traders in the stock and bond markets laid down financial bets based on a Fed "policy shift" that turned out to be an illusion.

Annapolis, a colonial city, was never designed to provide parking for a mix of multicar families, restaurant and shop patrons, tourists, and a seasonal corps of politicians and lobbyists. But that's exactly what the city of narrow streets and cramped blocks does. And officials say the daily quest for parking spots gets harder every year. So Mayor Ellen O. Moyer is proposing a comprehensive overhaul of parking policies that would increase meter rates, protect residential streets from tourist parking, divert parkers to a few garages and satellite lots, and ramp up law enforcement against those who park illegally.

Parking meter rates would double, some time limits would shorten, and more short-term parking would be encouraged in city garages under a committee proposal to overhaul downtown Annapolis' parking pricing policies. An 11-member ad hoc committee appointed by Mayor Ellen O. Moyer released last week its draft recommendations for easing the parking crunch downtown. The more controversial proposals would raise parking meter rates from 50 cents to $1 per hour on all streets and cut the time limit at some meters from two hours to one, with the limits expiring at 6 p.m. instead of 7 p.m. Committee members sought to encourage turnover at metered spaces, draw city residents into parking garages, and encourage employees to park at the Navy Marine Corps Memorial Stadium lot and take the free shuttle.

WASHINGTON - To almost no one's surprise, the Federal Reserve Bank nudged interest rates up another quarter-point to 2.5 percent yesterday. What instead set Wall Street chattering is the environment in which policy-makers made their decision: less-than-robust hiring and relatively low inflation. "If they were listening to me, they would not be raising interest rates today," economist Ray Perryman said. "The economy is not at the level we would call robust yet. The danger is every time you raise interest rates, you make investment look unprofitable."