BEST WISHES for a rapid recovery: with that warm and heartfelt sentiment, the Federal Reserve Board has now begun to nudge interest rates forcefully downward. Lower interest is the most powerful remedy for recessions that the federal government possesses, and it should begin to push vigorously toward a resumption of growth by next summer.
Most forecasts say that the recession of 1991 will be relatively shallow and short, ending around the middle of next year. But there are substantial risks in these forecasts, and most of them involve forces outside the United States and not under American control. The most obvious is the possibility of war in the Persian Gulf and a jump in oil prices. But there are others.
The United States continues to live on imported money -- roughly $100 billion a year, most of it coming from Europe and Japan. But the unification of Germany, and the abandonment of communism in Eastern Europe generally, have created a huge demand for capital there. In Japan the stock market has dropped sharply over the past year, meaning that the Japanese may not have quite so much money to send abroad. The worldwide competition for loans seems likely to increase severely next year. That would force interest rates up here in the United States regardless of the Federal Reserve's intentions.
The stability and reliability of the American banking system is another factor. If foreigners began to worry about the safety of American banks, they would use those banks only if the interest rates were high enough to compensate them for the risk. The Federal Reserve has good control of the short-term rates but much less direct influence on the rates for long-term borrowing and lending. Those depend heavily on investors' assessments of the future -- and it's the long-term rates on which economic growth depends.
The United States is counting on a fast and continuing expansion of its exports to pull the economy quickly through this recession. For that reason, the collapse of the Uruguay Round of trade talks -- if it finally happens over the next month or two -- could interfere with a strong recovery. If world trade falls into a period of quarreling and tit-for-tat retaliation, neither the United States nor any other country is likely to have great success with an export drive.
Perhaps none of these hazards will actually materialize. Let's hope not. But it's probably correct to say that at this point, the dimensions of the recession ahead depend more on events and perceptions abroad than on policy here in Washington.