BANKING & FINANCE - Nov. 28, 1995

Greenspan Warns of Higher Interest Costs: A failure by Congress to reach a balanced-budget agreement could lead to a “sharp increase” in the cost of mortgages and other interest rates, Federal Reserve Chairman Alan Greenspan said. “I think the reaction could be quite negative” in the financial markets, Greenspan said at a Senate Banking Committee hearing. For months, Republicans have been making the argument that failure to work out a budget deal could hurt the financial markets, and ultimately raise the cost of borrowing for consumers. Greenspan’s comments, made in response to questions by Sen. Pete V. Domenici (R-N.M.), chairman of the Senate Budget Committee, served to further bolster the GOP’s arguments. Greenspan said expectations of a balanced-budget agreement had lifted the financial markets in the past year, playing a major role in a long-term interest rate decline.