Evening star. [volume] (Washington, D.C.) 1854-1972, 1930-02-07
Federal RESERVE
! ACHIEVES OBJECT
Reduction in Rediscount Rate
| Seen as Factor Toward
| Stability.

Stability in money rates-the objective
of the Federal Reserve system for sew
eral monthS-appearS at last to have
been achieved.
When the stock market collapse came
last October, there were predictions of
how low money rates would stimulate
construction and business activity as
against the long period Of high rates
which had throttled business in many
fields. But low money did not come.
And while there were days of compare
tive ease in the money market, the
fluctuations produced uncertainty. The
movement of gold abroad caused some
concern And the real estate first mort
gage market of the country showed a
little improvement.
One of the first things Treasury
officials said when the market collapsed
was that the biggest single item in .
rates or rather cheap money"
Hesitate Over Lower Rate.
The Federal Reserve Banks did reduce
their rediscount rate and this was
sign of the direction in which money
rates were moving, but when there was
heSitancy week or two ago to bring
the discount rate down further there
was some confederation of the idea that
money rates might rise again.
The action of the Federal Re-
serve Bank in reducing the redis-
count rate on Thursday to per
cent, which OF course had the approval
of the Federal Reserve Board here, was
that the authorities decided money
rates could 60 down still further. The
fact that money in the call market
was renewing around per cent, with
a tendency to go down below that, had
its effect, but at the same time the
drop in the rate of bankers acceptances
proved a decisive factor too, for at last
the bill policy of the Federal Reserve
Board, begun last Summer, is having its
maximum influence. Control OF money
rates through the regulation OF rates
ION bills has long been agitated as one
lof the functions of the reserve system.
The bill or bankers acceptance. having
the Endorsement Of two or more banks,
is considered even better security at
the Federal Reserve than prime COM
lmercial paper or collateral loans. Hence
as the bill rate goes down because OF
the demand for such acceptances, the
rediscount rate is supposed to come
down too, so that the two may keep
certain margin between them.
It was when the bill rate was higher
than the rediScount rate last year that
the climax came and high rediscount
rate was finally established after a
prolonged argument between the Fed
leral Reserve Bany directors Of New York
and the board here.
Absolute Agreement,
Now there is absolute agreement on
how money rates should be handled, and
the drop in the rediscount rate at New
York may be expected to be the fore
runner Of 4 per cent rates in other
Federal Reserve districts. It is still
doubtful whether the rate will ever go
back to 3I2 per cent. which was the
beginning Of the So-called Coolidge
boom, but 1t Is much more likely to go
down than up again. The per cent
, is considered a medium rate around
which the other money influences can
revolve with confidence A per cent
rediScount rate means better market
for bonds and the financing of the con-
Struction activities Of the country
through building loans. It Is a sign
of n decided improvement in industry
and favorable outlook in business.
FtCdDyright. 1eso.l