LETTERS: FEDERAL RESERVE INTEREST INCREASES ACCOMPANIED BY TAX CUTS APPEARS TO BE CONTRADICTORY POLICIES

To the editor:

the latest wholesale price index figures indicate a continuing potential inflation problem. these figures raise the likelihood of further interest-rate increases by the Federal Reserve. the purpose of the previous six interest increases this year was to dampen inflationary pressures. by raising the cost of borrowing money, people will tend to buy less. Research indicates the burden of this action falls upon the middle class, which tends to be the largest net borrowers.

Along comes Newt Gingrich and the Contract with America bandwagon promising middle-class tax cuts. Among those jumpin on this populist bandwagon is President Clinton, making a middle-class tax cut almost inevitable. Such a tax cut will leave more money in the hands of middle-income taxpayers.

It is a contradictory policy to have the Federal Reserve squeezing money out of the middle-income pockets only to have Congress put it back in the form of a tax cut. If tax cuts will futher stimulate the economy, this is exactly what the Fed is trying to prvent. If tax cuts will increase the deficit, this too is an undesireable outcome.

We can only hope that politicians temper their zeal to shore up electoral support for 1996 and take actions to ensure the long-term, stable growth of the economy.

PETER J. GORDON

Cape Girardeau