Fed needs caution in fighting inflation

Not too many people remember that on Sept. 4 last year theFederal Reserve Board boosted the interest rate it charges bankborrowers. In fact, nobody much took great notice of it at the time.

A couple of happenings on dates immediately following Sept. 4,1987, should be noted. The increase in the Fed's rate, the so-calleddiscount rate, caused the banks to pass the increase along tocustomers. The prime bank rate went up in half-point jumps, to 8.75and then to 9.25 on Oct. 7. The stock market broke wide open Oct. 19with the Dow industrials plunging 508 points.

On Aug. 9 this year, the Federal Reserve bumped the discountrate from 6 percent to 6.5 percent. Two days …