A Birthday for Fed Policy: Psychology Not Licked
The Federal ReserveÛªs light-money policy is now a full year old, but not even Ihose responsible for Its birth feel like celebrating the anniversary.</br></br>It was on Dec. 17, 1008, that the 12-memher, pollcy-aettlng Open Market Committee of the ÛÏFed" voted to yank hard on the credit reins to kick off a determined push to curb inflation. The committee revised its directive to the policy-executing New York district bank to call for conducting future operations ÛÏwith a view to attaining firmer conditions ... In the credit markets.Û</br></br>Thus began one of the most drastic hold-downs on money-supply growth in (he nation's history. The mid-December action-was later supplemented by increases in the discount rate at which banks borrow from the Fed, by higher reserve requirements on bank deposits (leaving less cash free for lending), and by further buying and selling of securities in the open market to drain off funds and produce even tighter conditions.</br></br>The year that has followed has defied many theories and forecasts. Working in tandem with a tight budget policy, the FedÛªs policy in the past 12 months has brought a set of developmentsÛÓsome quite painfulÛÓthat few dreamed of as 1969 was approaching. For example: drained the banks of their ready, lend-able cashÛÓtheir so-called liquidityÛÓand forced them tp scour European money markets for funds to meet loan commitments previously contracted for. Ranks are passing their high money costs on to customers at a prime rateÛÓ which they charged their highest rated customersÛÓor	per cent. Most bor-</br></br>Û¢	The squeezeÛÓalong with the Inflation it is supposed to counter-actÛÓhas helped push interest rates to record levels. Top-grade corporate bonds com- mand yields near 0 per coni, while those of lesser quality offer up to Hi per cent. Issues of Federal agencies return around 8Û÷A per cent.