Word: feds
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Dates: during 1960-1969
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...help boost the economy, the Federal Reserve Board last week unlimbered an old fiscal weapon that President Kennedy and many liberal economists have long wanted restored to the nation's antirecession arsenal. The Fed announced it would begin buying U.S. notes and bonds of longer maturity.* By entering the long-term market, the Fed can shorten the supply of bonds, push prices up-and thus help nudge yields lower. Since Government bond yields tend to set the tone of all interest rates, this policy would be expected to push long-term rates down, make money cheaper and thus encourage...
Last week's policy switch also represents a sharp about-face for William McChesney Martin, 54, the shrewd, conservative chairman of the FRB. During World War II and the early postwar years, the Fed was little more than the Treasury's valet, pegging bond prices to keep interest charges-and the cost of the war-low for the Government. Though the policy was fine for wartime, in peace it made the Fed, as one chairman, Marriner Eccles, complained, "an engine of inflation." Finally in 1951 the Fed rebelled, refusing to support the price of Treasury bonds...
Presidential Pressure? One of the architects of the Fed's 1951 accord was Martin, and that same year he took over as chairman, with the task of making "bills preferably" stick. Since the Eisenhower Administration viewed the Fed as the primary means of reining inflation, he had little trouble. But early in the campaign Kennedy made plain that he thought the Fed had swung from its earlier valet role too far toward an independent, negative role in monetary control. He wanted more Fed-Treasury cooperation, especially as he viewed the Fed as only one means of controlling credit...
...Kennedy pressure Martin into the Fed's new role? The answer: no. Kennedy had indeed called Martin in and explained his views. They were also the views of some of the Fed's own members, notably former New York Fed Vice President Robert Roosa, now Under Secretary of the Treasury. They wanted the Fed to get back into long-term interest issues. Since long-term rates were already easing, Martin sensibly agreed to help give them a downward nudge and his critics a chance...
...contradictory." He pointed out that as bond yields decline, the inducement to invest at long term will weaken, and investors may switch to the short-term market, driving rates down there as well. Other critics are also afraid that the abandonment of the "bills preferably" policy will commit the Fed to supporting long-term holdings, upset the market and launch a new round of inflation. But Martin, who has carved out the Fed's reputation for independence in the last decade, has no intention of letting the image be chipped away now. He has made plain he will cooperate...