USA

The Federal Reserve, having failed in its attempts to persuade either the Japanese or West German governments to adopt a more expansionary stance, has persisted in its policy of monetary relaxation as a means of boosting domestic: demand and, by way of a lower dollar, improving US competitiveness. In spite of a monetary overshoot, interest rates have been cut repeatedly this year and the current level of the discount rate is the lowest in nearly a decade. The tightening of fiscal policy, which Federal Reserve Chairman Paul Volcker insisted was a pre‐requisite of monetary easing, remains elusive. As the “automaticity” element of Gramm‐Rudman has been declared unconstitutional, the onus for cutting the budget deficit is once more back on Congress. And while little progress is made on reducing domestic absorption, the trade and current account deficits continue to set new records.