PRESIDENT CARTER'S attack on the Federal Reserve Board was disingenuous even by the rubbery stanards of mid-campaign. He knows perfectly well that the board has had little choice but to let interest rates rise. Fortunately, no one seems to have taken the president very seriously. Keeping interest rates down means letting inflation soar. If borrowers and lenders thought that the president really intended to start on that path, the consquences would be immediate and dire. But financial people have apparently shrugged it off as electioneering -- although it's electioneering of a particularly crass and reckless sort.
If the incident has any effect at all, it will be the opposite of the one that Mr. Carter claimed to want. Whenever a president leans on the Federal Reserve, the Federal Reserve has to demonstrate that it is not being influenced. Its behavior becomes, for a time, more starchy and severe than ever -- if it is living up to its responsibilities.
Erratic though the interest rates have been, there's no great mystery about the reasons. Earlier this year driven by fears of uncontrolled inflation, interest rates went to astounding heights. In response, the Federal Reserve imposed an array of controls and Congress pushed the president into another attempt to balance the budget. Then, amidst evidence that a recession was under way, rates fell. Recessions usually slow down inflation.
But by midsummer it began to appear that the recession would be short, with little effect on the inflationary process. Rising inflation is an incentive to borrow, and the accelerated borrowing in turn makes the inflation worse. The Federal Reserve has been reacting by restraining the amounts of money available to the banks to lend. That's what is now pushing up the interest rates.
What would Mr. Carter have the Federal Reserve do? To do nothing would risk a repetition of last winter's near-panic. Presumably not even Mr. Carter considers that episode to have been an example of foresighted and prudent economic management. Or perhaps people would have begun fleeing from the dollar into other currencies, starting a dollar crisis. There have been two of them so far in the Carter administration. Mr. Carter needs to be careful about that possibility. Foreign speculators are not always as ready as Americans to discount campaign gaffes, or attribute them to mere desperation.
In these last weeks before the election, Mr. Carter can do little to make the economy run better. But if he continues in the present vein, he can certainly make it run much more badly.