On Thursday morning, this newspaper urged the Federal Reserve Board to make its next cut in the discount rate a "rouser -- one that will produce real savings on interest costs for the Treasury and encourage industry to increase its anemic investment plans." On Friday morning, the Fed came through. Its rousing 1 percent slash in the discount rate to 3.5 percent -- the lowest in 27 years -- was precisely the kind of jump-start the faltering economy needs.
There is no assurance that this will turn around an economy in which overwhelming debt -- private, corporate and public -- is stifling consumer confidence, restricting government pump-priming and discouraging business expansion. Incremental interest reductions through the course of the present recession have been noticeably ineffective in checking the downslide. But the Federal Reserve's first full percentage-point cut in a decade is of a magnitude that could make a difference, especially in reducing real long-term interest rates to a stimulative level.
If successful, the Fed's dramatic action might deflect mounting political pressure for a quick-fix, election-year tax rebate that might boost consumer spending a little but would do nothing to fix the nation's long-term problems. Indeed, such a gimmick would instantly act as an upward pull on both interest rates and the inflation rate. At only 2.1 percent, the current inflation figure is giving the Fed the leeway it needs to use monetary policy as a weapon to fight recession. Past irresponsibility by the executive and legislative branches forecloses any turn to fiscal adrenalin that would not have adverse effects.