Word: frb
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...Federal Reserve Board must bow to White House pressure and continue to peg, or support, the price of Government bonds above par, thus continuing to make available billions for credit inflation any time that banks or insurance companies wanted to unload their bonds. Harry Truman had insisted that FRB continue the support policy, but had become alarmed at the uproar this had caused...
Last week, with no peep whatever from the White House, FRB stopped supporting Government bonds. In effect, FRB served notice that from now on it will let the Government bond market fluctuate, and will support it at no predetermined level...
...unpegging was apparently part of the agreement between FRB Chairman Thomas B. McCabe and Snyder on the terms of the Treasury's new $19.6 billion refunding bond issue (TIME, March 12), which is intended partly to freeze bank reserves-another point FRB wanted. The new bonds will bear 2 3/4% interest, an increase of ¼% over present long-term bonds...
...When FRB pulled its peg, the long-term 2½% bonds, which had been supported above par, slumped to par. But FRB had picked a shrewd time to drop its support. It was the same day that Snyder announced the details of his new issue. Insurance companies and other big buyers liked the terms so well that they jumped into the market and prices steadied, although down from the pegged level...
...real question remained: Was Treasury Secretary John Snyder (who has had the President's backing) still insisting that the FRB continue to support the Government bond market, thus put unlimited cash at the call of banks, insurance companies, etc.? If he was, the inducement of higher interest alone would not be enough to persuade bondholders to lock away their cash in new Government securities. It was merely a sign that things might be moving in the right direction-away from Snyder's "easy money" toward a sounder monetary policy...