LETTER: Higher interest rates won’t benefit the middle class

In his March 15 letter (“Fed actions”), Paul Gary says raise interest rates “to 2 percent, put some interest money into the pockets of the middle class and stop worrying how much money the wealthy will pay for their extravagances.” Just who does Mr. Gary think would be paying the 2 percentage point rise in the interest rate? Just the wealthy?

The interest rate will be paid by everybody who borrows money from banks. The cost of interest will rise accordingly for mortgages, auto loans, credit cards and business loans. The immediate effect is that fewer people can afford the loans. There will be fewer houses sold, fewer cars sold, fewer credit card purchases and less business activity. This could cause a recession.

The Fed interest rate is not a tax to be collected and distributed. The rate controls the money supply in order to control the inflation rate and unemployment. The interest collected is the profit of loaning out the money. If we were to distribute the interest collected to the middle class, who would want to loan out the money?