DEAR FED: STOP BICKERING AND CUT RATES
Anti-inflation hawks on the Federal Reserve Board's policy committee should stop dive-bombing every sign of inflation and join the task of promoting an economic recovery. Fed Chairman Alan Greenspan and others have a clear long-term goal of cutting inflation, but the hawks appear much more willing to sacrifice growth in pursuit of that goal. The March employment report painted a grim picture of the economy, and it justified a further easing of monetary policy. However, the internal squabbling over inflation has delayed a much-needed cut in interest rates, at least until Washington's next set of price reports.
Inflation worries are exaggerated to begin with. Wages are slowing. Operating rates are falling. Commodity prices remain weak. And the economy is showing few signs of a much-anticipated spring bounce. Inflation always declines in the wake of recession, but with a lag. In the past, inflation has tended to head south toward the end of a recession and continue falling well into the recovery. Moreover, the concern about inflation is based on a consumer price index that is fraught with measurement problems and may well be overstating price pressures.
The Fed should immediately cut the federal funds rate by another quarter point, to 5 3/4%, and lower the discount rate by a half point, to 5.5%. For the sake of lower long-term interest rates, Fed officials should cease openly debating the policy committee's decisions. Such bickering is especially destructive because it erodes the bond market's confidence that the Fed has a clear and united vision of policy. That assurance is critical to declines in long rates that will buoy housing, autos, and other credit-driven sectors crucial to economic recovery.