HAVING MADE the right decision this week in defense of the dollar, President Carter now needs to stick firmly with them. Last summer, the administration repeatedly obscurred its own position behind murmurs from the White House that interest rates were already too high and hints from the Federal Reserve Board that they would shortly peak and begin to decline. The president has now chosen a course of action that is difficult and painful, but necessary. He cannot afford to let anyone doubt that, this time, he means it.
The last sharp slide in the value of the dollar - costly and disruptive to the world economy, ominously inflationary to the United States - owed a lot to uncertainty about Mr. Carter's intentions. It was a response not only to things that have actually happened, but also to things that traders, bankers and foreign governments thought might happen next. Specifically, they suspected that the Carter administration, moving toward the 1980 election, was prepared to go to any lengths to avoid a recession. There seemed to be a good deal of evidence scattered around to support that suspicion.
When Mr. Carter announced his guidelines for wages and prices, he omitted any mention of interest rates and the very rapid recent growth of the money supply. A lot of people in the currency markets immediately assumed that the country was in for a repetition of the disingenous strategy that the Nixon administration used in 1971-72. In that well-remembered example, the government imposed mandatory controls on wages and prices, then proceeded to invoke the most inflationary tactics possible to speed up the economy for the election year. The consequences fell on the economy after the elections, of course, but they were severe and they still contribute heavily to the country's present troubles. Because of that unwholesome precedent, it was essential for Mr. Carter to make it clear, at once, that he did not propose to let the money supply keep spinning upward.
His actions will raise interest rates further, and perhaps cut off credit to some borrowers to need it. It is a somber prospect. But the alternative would have been to let inflation float to still higher levels. As the country learned in 1974-75, unrestrained inflation can produce as unusually deep and frightening recession. It has frequently been said that Mr. Carter's decisions this week have made a recession more likely. That's not quite right. A recession within the next year or two was becoming increasingly probable in any case. His actions have made it likely that a recession will come sooner - but, we would argue, less severe when it comes, passing more quickly, inflicting less harm.