Lower Rates and Heighten Hopes

The American economy would appear to be poised at a turning point, and it could well be that another good, quick shot in the arm by the Federal Reserve Board might help get this economy off the floor.

By cutting the federal funds rate another quarter point (to 5 3/4%) and the discount rate by a half point (to 5 1/2%), the Fed could provide just enough sunshine to melt away the economic winter and usher in a healthier spring.

Probably the only thing holding the Fed’s policy committee back is the fear of inflation. But right now inflation is not a problem. The latest inflation figures were the lowest in a long time, and even if the much-awaited recovery materializes soon, they likely will remain low for some time after that.

The problem is not inflation but lethargy.

It’s true that Fed action alone won’t solve the problem. There is, for instance, some evidence that banks are reluctant to pass on interest-rate cuts to customers no matter how low rates go. But swift action by the Fed could prove a confidence-building measure that might even puncture bankers’ blues.

So much in life is timing. There are positive economic signs on the horizon right now--not many to be sure, but enough to raise hopes. With inflation rates relatively low, the time to act is now; with delay, an opportunity would vanish.

Economic growth is not the answer to all that ails America--from deepening state budget deficits to growing unemployment--but it’s a prerequisite to curing those ills.