WHEN AND IF a budget agreement is finally enacted, everyone hopes that interest rates will come down. A faltering economy needs lower rates. But no one can say how much they will come down. No government agency controls them. Some of the people in both the administration and Congress seem to think that lower rates are part of the deal and that the Federal Reserve Board has promised to lower them as a reward for deficit-reduction legislation. That's not quite correct.

A few days after the (failed) budget agreement appeared on Sept. 30, the board's chairman, Alan Greenspan, urged Congress to pass it and declared that, as a result, interest rates would fall. The following day the House, ignoring his advice, voted the agreement down. But a lot of people read and remembered Mr. Greenspan's words as a pledge to act when Congress did. That apparently made the Federal Reserve uneasy, for someone then broke the usual rule of silence to let it be known that the authorities there had in mind only a gesture -- a reduction of perhaps a quarter of a percentage point -- to nudge the market in the right direction.

The Federal Reserve can push short-term rates down quite a lot by pouring money into the banking system. But it has little direct control over the long-term rates -- and it's the long-term rates that finance industrial expansion, home building and economic growth in general. The long-term rates are strongly influenced by investors' judgments about future inflation. That creates a trap for the Federal Reserve. If it turns on the spigot and floods the markets with money to reduce interest rates, that signals higher inflation ahead and the interest on the longer loans will rise. That's the monetary paradox: too much political pressure for lower interest rates will result in higher interest rates.

A serious and substantial reduction in the deficit should bring lower interest automatically. It would mean that the federal government would no longer need to borrow as much as previously to finance that deficit, and with less competition for capital the cost should go down.

But perhaps not immediately. The markets are full of people who lost a lot of money in the 1970s underestimating American inflation, and they are not likely to make the same mistake again. To them, the present situation is not reassuring. Once again the price of oil is rising. Congress and the Bush administration are drumming on the Federal Reserve for easier money. Inflation is already beginning to speed up. Before interest rates can fall, inflation will have to slow down. That's the Federal Reserve's first responsibility.