I need another car, and soon. My 1995 Plymouth Voyager is badly beat up and falling apart. The heat barely works, a significant drawback during Minnesota’s long winters. I’m not looking forward to the summer months, either, since my air conditioning system is broken. So, last weekend I decided to buy a well maintained used car offered at a reasonable price. But after February’s stunning job loss of 308,000, and inevitability of war with Iraq, now just didn’t seem like a good time to take on debt. I cancelled my meeting with the car dealer.

Multiply this anecdote by the hundreds of thousands and you know why the economy is skidding to a halt. No matter what the textbooks teach, war is bad for business and confidence on the home front. With the duration and extent of battle unknown-as well as the casualty list-managers in executive suites, workers on factory floors, traders on Wall Street, and consumers at home are in a state of semi paralysis. Adding to everyone’s fiscal and emotional stress is the huge run up in oil and gasoline prices.

Many Wall Street analysts believe the Federal Reserve will shore up the flagging economy by cutting its benchmark interest rate a quarter point at its meeting next week. Others are skeptical that the Fed will ease. The “stay the course” advocates point out that disposable consumer income, corporate profits, industrial production, and real capital spending on equipment and software are up year over year. Commodity prices, excluding oil and gold, are rising, a traditional harbinger of stronger economic activity. The Fed also has a strong incentive to wait until its clear whether war will be quick and easy or long and messy.

Still, the Fed should ease once again, perhaps by a quarter point. With job losses mounting, confidence plummeting, and the economy sliding toward recession the risk of a downward deflationary spiral in the U.S. is too great for the Fed to stay on the sidelines. Think Japan.

To be sure, there is only 1.25 percent between the central bank's key interest rate, the fed funds rate, and zero. The Fed’s conventional technique for stimulating the economy becomes ineffectual at a zero interest rate. But the Fed has gone out of its way in recent months to emphasize that it has several other options to quicken the economy’s pace, including buying long-term Treasury securities and announcing yield ceilings on longer term debt. No one wants to find out whether those arcane techniques will work. The Fed should ease now-and then cross its fingers.

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