Judging the Federal Reserve Board by what it does rather than what it says, the Recession of 1990-9? is here and real and virtually official. By lowering its discount rate (the rate it charges member banks) to 6.5 percent from 7 percent, the Fed has moved aggressively to deal with "weakness in the economy, constraints on credit and slow growth in the monetary aggregates." Its reticence to switch emphasis from inflation-fighting to recession-fighting is now history.
Financial markets expect the federal funds rate (the Fed-set overnight rate banks charge one another) to drop at any moment to 7 percent and even to 6.75 percent from its current 7.25 percent rate. After that, consumers can expect lower interest rates on credit card accounts, home equity loans and other personal debt, although financially strapped banking institutions may hold back on dropping their prime rates until the turn of the year in order to boost their slim earnings.
Whether the latest Fed moves, along with some pumping up of money supply, will appreciably slow the economy's downspin is a matter of debate among the experts. The current recession is a mystery -- and a troubling one at that -- because it is primarily induced by the borrowing binges of the Reagan era that left financial institutions lacking the capital needed for recovery. There is little precedent for guessing its duration or severity.