The Federal Reserve, our nation's central bank and monetary authority, lowered a key short term lending rate on January 30th. The discount rate was lowered by twenty‑five basis points. The discount rate is what the Federal Reserve charges financial institutions when they choose to borrow funds from the central bank. The members of the Federal Reserve Open Market Committee must have believed that the national economy was on the verge of stalling and needed a jump start to keep it moving forward. Given the slow down in the collection of economic data, caused by the temporary layoff of government workers, it was difficult to determine the direction of the economy at the time of their meeting. 

     Economic theory suggests that lowering the borrowing rate for financial institutions will eventually cause borrowing rates for businesses and consumers to decline. Lower rates stimulate capital good investment by businesses and additional purchases on the part of households. This increased demand for goods and services will in response cause the demand for labor to rise. More people working, or at least working longer hours, creates income which in turn will be spent on additional goods and services. Thus, a multiplier effect gradually spreads throughout the economy. Typically it takes about six months for a policy change to affect the economy and even longer still before the full impact is felt. 

     With the economy apparently slowing to a crawl and with fierce competitive pressures facing most businesses the Fed hell the position that the extra stimulus to the economy would not ignite inflationary pressures in the economy. The Fed's bias in policy matters over the past sixteen years has been to concern itself more with containing inflation than promoting rapid economic growth. This has been especially true during Alan Greenspan's two terms as Fed chairman. 

     As stated in previous quarterly reports anytime there has been a loosening of the monetary reigns by the Fed it has been more of an attempt to keep the economy from slipping into recession rather than a dynamic change in its underlying philosophy. Let's all hope the Fed has acted swift enough to avoid a recession. 

     The Central Wisconsin economy is tied to the state economy which in turn is tied to the national situation. The latest information suggests the national economy will grow by about 2.5 percent during 1996 on an inflation adjusted basis after expanding by 3.3 percent in 1995. Nonfarm employment will expand by approximately 1.8 percent compared to 2.3 percent last year and real personal income will rise by 2.7 percent rather than 3.9 percent of a year ago. The inflation rate is forecasted to come in at 2.9 percent over the next twelve months or about the same as in past years. 

     For Wisconsin 1996 holds the promise that nominal personal income will rise 4.5 percent and per capita nominal income will expand by an even more modest 3.3 percent. In comparison during 1995 nominal personal income rose by 6.0 percent and per capita nominal income grew by 5.1 percent. Thus, 1996 looks to be a slower economic year than 1995.