Report | Economic Growth

High Interest Rates: It’s Not Just the Deficit

Briefing Paper #1

Download PDF

There is a rough consensus among economic policy analysts that
U.S. interest rates must come down further in order to maintain
economic growth and to prevent unemployment from rising. Lower
interest rates will stimulate consumer spending and investment, and
help to reduce the extraordinarily high value of the dollar that is
behind much of our deteriorating trade balance.

Efforts to bring interest rates down have focused almost
exclusively on reducing the Federal fiscal deficit. The explicit
assumption of the federal budget debate is that lowering the
expected FY ’86 deficit by roughly $50 billion will automatically
reduce real interest rates to a more traditional level — i.e., a
prime rate roughly two to three points above the rate of
In 1984, this would have meant an average prime rate of

See related work on Economic Growth

See more work by Richard Medley