Word: feds
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Dates: during 1970-1979
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...market break came on Tuesday. That was when the naition's banks reopened after the Columbus Day holiday, and made their response to the Fed's discount-rate rise. Led by Chase Manhattan, the nation's third largest bank, several institutions immediately raised the prime rate (the interest charged the most credit-worthy corporate customers) from 13.5%, already a record, to a new peak of 14.5%. Since quarter-point raises are the norm, the effect of the full-point boost in the prime was electric. Not only did it push the interest charged to margin investors up close...
...really huge midweek selling spree on the Big Board. The dumping spread, irrationally, not only to the commodities and futures markets but also to the international currency centers. Out of fear and uncertainty, traders who had been buying dollars on Monday on the logical theory that the Fed's moves would strengthen the greenback abruptly began selling them again...
Strictly speaking, the Federal Reserve's action is less a shift in policy than a change in procedure. Successive Fed chairmen, beginning with William McChesney Martin in 1951, have remained committed to holding down inflation by preventing the rapid growth of money and credit. But the economy of the 1970s has grown so bloated and distorted with spiraling prices that the traditional techniques of money management have become increasingly useless and even counterproductive. Indeed, at certain critical moments, well-intentioned efforts by the Fed either to tighten up or to relax the reins on monetary growth have boomeranged. The result...
...fact, a surprise surge in money growth was precisely what happened last spring. This is a big reason why inflation shows no signs of abating. Ironically, even as then Fed Chairman and now Treasury Secretary G. William Miller was proclaiming a clampdown on monetary growth and pointing proudly to double-digit nationwide interest rates as evidence that the Fed was making it costly to borrow funds, the money supply itself was about to explode...
Miller's mistake had been to assume that the Fed's orchestration of the highest interest rates in five years would alone be sufficient to discourage borrowing and spending. Through the first half of 1979, business was actually slowing somewhat as a result of bad winter weather and the gasoline squeeze, which together put a crimp in consumer purchasing. The Fed even began to fear that its seemingly draconian interest rates were pushing the economy headlong into recession...