Pressing Down the Prime

Despite only moderately strong corporate borrowing, U.S. bankers have been steadily edging up their prime rates on loans to businessmen. Higher rates could eventually lead to costlier consumer loans and mortgages, add to inflation and slow the economy by making businessmen more reluctant to borrow. Now members of the Administration's Committee on Interest and Dividends, headed by Federal Reserve Chairman Arthur Burns, are warning influential bankers in New York City and elsewhere to hold down their prime rate. The message, in some cases delivered by Burns himself: lifting rates now is unnecessary and a little greedy.

Bankers see in this jawboning a threat that the Administration might place controls on rates. The committee itself has given no public hint of what kind of line it might pursue, though the Federal Reserve has the power to restrain certain rates. This week New York's First National City Bank and Pittsburgh's Mellon National Bank & Trust lowered their prime rates from 5 3/8 to 5 3/4. In addition, New York's Bankers Trust gave up the practice of automatically keeping its prime loan rate slightly above such key money market rates as those for commercial paper and certificates of deposit; other banks may well follow its lead. This will remove some immediate upward pressure on the prime rate, but a greater problem lies ahead. To finance the nation's huge budget deficit, the Treasury will borrow about $9 billion in the next two or three months. Burns has made clear that the Federal Reserve will not grind out money to accommodate a jump in borrowing demand. Thus some interest rates are certain to rise--after the election.

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