The Federal Reserve Board's latest move to ease the credit crunch is further acknowledgment that the economy is in recession. Fed chairman Alan Greenspan conceded last week that the country is in the midst of a "meaningful downturn" but avoided use of the "R-word" until it is confirmed by two straight quarters of negative growth.
By easing reserve requirements for commercial banks, the Fed gave a shot in the arm to a sorely pressed sector of the financial community. Whether banks will actually ease the squeeze on would-be borrowers or put their newly released funds into Treasury securities to improve their earnings and balance sheets is a matter of conjecture. But the Fed made clear its main concern is a shortage of loan money. It said it wanted to provide "added incentive to lend to creditworthy borrowers, countering the impact of the recent tightening of credit conditions."
The credit crunch is widely blamed for worsening what President Bush has labeled a "serious slowdown." Both corporations and individuals in many parts of the country have encountered difficulty in getting loans because many banks, with plenty of nudging from federal regulators, have drawn away from the high-flying business practices of the 1980s.