Economics panel to urge another interest rate cut

March 26, 1992|By Gilbert A. Lewthwaite | Gilbert A. Lewthwaite,Washington Bureau

WASHINGTON 6 — WASHINGTON -- A congressional economics panel will call today for another dramatic reduction in interest rates to "encourage banks to get back into the business of extending loans" and to stimulate the recession-wracked economy.

The Joint Economic Committee, in its annual report on the economy, charges the Federal Reserve with not acting decisively enough to end the "credit crunch," which has reined back the recovery.

Sen. Paul S. Sarbanes, the Maryland Democrat who chairs the committee, said yesterday: "If you look historically, they have not done that much in this recession. There is no reason that I see why the Fed cannot have a more stimulative monetary policy right now. There is no inflationary threat.

"There is not a big fiscal stimulus at work," Mr. Sarbanes continued. "You are really looking at them for stimulus."

Banks, burned by earlier bad loan decisions, have switched from risky commercial and industrial lending to holding safe government securities, the report says.

Lower interest rates would lessen the appeal of government holdings and encourage the banks to lend more.

In recent congressional testimony, Federal Reserve Board chairman Alan Greenspan said he thought interest rates were now low enough to boost the economy, but that he would be ready to ease them further if the fledgling recovery faltered.

The Joint Economic Committee says neither the short-term nor long-term outlook "is particularly encouraging."

The economy is "fundamentally off track," it says and calls for "a Marshall Plan for America," referring to the massive U.S. aid program to rebuild Europe after World War II.

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