The national economy continues to slow. GNP grew by only 0.5 percent during the last 3 months of 1989. Job generation and other measures of national output suggest that economic expansion is becoming tenuous. Corporate profitability has declined over the past several quarters to near recession levels. The stock market has been trending downward in response to prospects of even lower earnings. 

     The White House has called upon the Federal Reserve System to lower interest rates and stimulate the economy before it slips into recession. The likelihood of the Federal Reserve System doing this is uncertain and complicated by events taking place outside of the United States. Several of our major trading partners have increased their domestic interest rates in an attempt to prop up their currencies in foreign exchange markets. In order for the United States to attract international financing for our borrowing needs, interest rates must remain competitive. This makes the Federal Reserve's position on money expansion very difficult, lowering interest rates, for example, could cause substantial problems in raising capital from international sources. 

     Another matter complicating the situation is the inflation rate. While the rate of 4.6 percent is manageable, fear exists that any attempt to stimulate the economy may cause an unwanted acceleration. The Federal Reserve and its chairman, Alan Greenspan, are on record as indicating that controlling inflation is the number one objective. With the inflation rate acting in a stubborn manner, refusing to come down in the face of a slowing economy, it seems unlikely that the Federal Reserve would be willing to ease monetary policy to such an extent as to make a difference in the course of the economy. Lastly, even if the Fed does loosen, there is a lag between the time a policy is enacted and its impact on the situation. In other words, it's probably too late for action. 

     Whether or not the economy will sink into a recession in the months ahead is a close call with the consensus of economists believing that a continuation of the sluggish growth is the most likely scenario. However, a vocal minority contends that we have already slid into a downturn, with over half of the states already reporting a slumping of economic activity.