Business Notes The Economy

The industrial countries came to a happy meeting of minds last week about the direction in which interest rates should go: down. For months Treasury Secretary James Baker has been exhorting other governments to stoke their economies by lowering their rates. One reason: healthy growth in other countries will boost U.S. exports. Last week Baker got some results. The West German central bank lowered its discount rate, the amount it charges on loans to other financial institutions, from 4% to 3.5%. Japan then announced a similar cut, its second since January. Hours later, the Federal Reserve Board dropped the U.S. discount rate from 7.5% to 7%, the lowest level since 1978.

Central bankers had been hesitant to bring down interest rates, partly because they worried about overheating their economies and rekindling inflation. But the plunge in oil prices in recent months has made the inflation threat much more remote.

Lower interest rates, and the faster growth they bring, will be a welcome tonic for the U.S. economy. Last week the Labor Department announced that unemployment jumped in February from 6.7% to 7.3%. Most of the increase, however, occurred in three states: California, Texas and Illinois. California's farm economy was disrupted by recent floods, Texas' oil business was decimated by falling petroleum prices, and Illinois lost many manufacturing jobs.