Word: rediscounting
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...issuance of Treasury 3/4 per cent bonds in 1953 and the subsequent tightening of the money market checked the over accumulation of inventory in that year; in fact, the policy was too successful in that this tightness probably helped to cause the mild recession of 1954. Today the rediscount stands at three per cent and companies with AA credit ratings who could borrow under Democratic administration at 2.8 per cent are now forced to put 4 1/8 per cent coupons on their bonds. The tightness of money is preventing many businesses from expanding. While high interest rates do not usually...
...pointed out that price increases for competitive consumer goods, a natural phenomenon in a humming economy, tend to check inflationary tendencies. Moreover, the increase in U.S. productivity is keeping pace with the boom. At week's end, however, the Federal Reserve Board was reported ready to raise the rediscount rate, for the sixth time in 17 months, to a uniform 3%. The aim: to ease down on the boom before it gets out of hand...
...Council of Economic Advisers thinks that the FRB should have the power to impose direct consumer credit controls. Currently, the FRB can enforce only indirect restrictions on consumer credit through its overall monetary operations. It can restrict credit only by increasing loan costs through boosts in the rediscount rate and reserves of member banks and sales of Government securities. But on the basis of past history, the council feels that such general, indirect controls are inadequate to deal with the special problem of consumer credit. While these may curb consumer credit, they also affect loans for new plants and equipment...
...says that if it had Regulation W type powers, it would have clamped them on last summer when consumer installment credit was jumping at the rate of $400 million to $500 million monthly. But without direct controls, it had to rely on an indirect method: it hiked the rediscount rate. As a result, the net increase in consumer installment credit dropped to $291 million in October. It rose again seasonally because of heavy Christmas buying to $345 million in November and $438 million in December. Since it takes several months for indirect controls to take firm hold on the economy...
...economic throttles. The trick was to keep credit easy enough to have a full head of steam, so that the economy would clip along full speed, yet not blow up into an inflationary boom and bust. As credit soared, the FRB put on the brakes by boosting the rediscount rate to member banks, thus making borrowing more expensive...