INTEREST RATES, a week ago, seemed to be heading downward. Then they suddenly turned around and, on Wednesday, the hyperactive federal funds rate, at which banks borrow from each other, hit a staggering 30 percent. As the week ended, the outlook was, as the weather reports sometimes say, mixed.
There was a time -- it seems a very long time ago -- when it seemed natural and obvious that interest rates moved, in general, with the business cycle. Rates fell when business was bad, and they began to rise in the recovery when things picked up and people began borrowing again. The pattern was a long wave, typically several years from peak to peak.
But the interest rates have now been through three spectacular peaks in the last 16 months. The first was in the near-panic of the late winter and early spring of 1980, the next was at the end of the year, and then there was another last month. The recent pattern has been rapid, sharp oscillation. But this time, following the peak, there has been no decisive and sustained droped in interest rates. They seem to be on a plateau. The fear of future inflation is holding them there.
It is conventional to talk as though the Federal Reserve Board could move interest rates lower if it chose. At present, that 's questionable. Tight restraint on credit will keep the rates high as people bid for scarce loans.But relaxaiton on credit might well send the rates even higher, since lenders would assume that it meant even faster inflation ahead.
It's not a cheerful propsect. Lee Iacocca has said repeatedly this spring that Chrysler cannot survive if the prime rate remains at 20 percent. The same thing is true of other companies that talk about it less publicly.In the financial world, the troubles of the savings and loan associations are rapidly mounting. It is possible for an optimist to see a future, eventually, in which inflation will be much lower and, as a consequence, interest rates will be down sharply. But even the optimists -- among whom we count ourselves -- have to expect a dismaying amount of wreckage along the road to that future.