Fed’s Reduction of Interest Rate

The Federal Reserve Board’s reduction in the discount rate to 3 1/2% (“Fed Cuts Interest Rate to ’64 Level,” Dec. 20) is a windfall to borrowers but an undeserved slap in the face to savers. Already shriveled earnings on savings accounts will now shrink further, punishing those who have been doing some of the saving that America needs.

Ironically, the latest Fed action came at the end of a week during which many of America’s leading economists, including the chairman of the Fed, told a congressional committee that excessive borrowing was the cause of much of America’s present economic plight. Some of these economic analyses also pointed the finger of blame at the nation’s puny savings rate.

We are told that America needs to save more, and yet the thrifty are being punished. After factoring in inflation and income taxes, many savings accounts already earn approximately zero. The Fed’s new move is likely to drive these earnings into the negative, converting savings accounts into “losings” accounts. Will depositors put up with this--and if they do, will it really be good for America?

JACK E. WEAVER

San Diego