Evening star. [volume] (Washington, D.C.) 1854-1972, 1956-06-10
MATTER or INTEREST
Reserve Board Action
Brings Hearing on Hill.
By HERBERT RRATTER

the interest rates which must be
paid by business, farmers, home
builders and users of installment
credit.
Interest rates have. gone up as a
result of action taken in April by
the Federal Reserve Board. That
action by our politically independ-
ent central bank" did not have the
approval Of Secretary of the Treas
ury George M. Humphrey, Secre-
tary of Commerce Sinclair Weeks,
Secretary Of Labor JAMES Mitch
ell or Chairman Arthur F. Burns
Of the Council of Economic Ad-
viSerS.
In calling upon Federal Reserve
Chairman William McC. Martin
and Secretary Humphrey for a
Qualification of their views on in
terest-rate and credit policy the
Joint Subcommittee on Economic
Sterilization will try to determine
whether the tightening of money
and credit brought about by the
Federal Reserves hiking of bank
discount rates throughout the
country was justified; whether at
this point in the Eisenhower
boom" imitation or deflation pres
entS the greatest threat to the
economy. Between now and cleo
ton day members of both parties
will be alert to the political impli-
Pafi0Yc Of thiS etthiaot
Influence on Interest Rotes
Interest rates-which are i'm
portant to those who have to pay
them and which can either stimu-
late or dampen the pace of eco
romic activity-are affected both
by the various actions open to
the Federal Reserve System, in
Guiding discount rate changes, and
by financing operations of the
Treasury Department.
Higher Federal Reserve discount
rates mean higher costs for COM
mercial banks. They, in turn, pass
on these higher costs to their
customers in the form of higher
interest charges on loans.
The Treasury takes in and
spends huge sums of money. The
nature of the securities which it
issues to raise money and the terms
and conditions applying to those
securities also affect the money
market, the interest rates which
other borrowers must pay and the
general economy.
It is therefore interesting to note
that this time there is a difference
OF opinion between the two main
influencers OF interest rates-the
Federal Reserve Board and the adj
mlnistration-as to whether WASH
ington's monetary policy at this
Juncture should be a policy of
restraint or Of ease in money and
credit.
In 1858 when the Eisenhower
administration was new in office
and set about consolidating the
public debt by Offering long-term
securities for short term ones. it
came under sharp Democratic
criticism in the Congress and else
where. The administration was
charged with so tightening money
rates as to court recession.
That time the Treasury's mr.
suit of orthodoxy IL. public finance
was accordingly relaxed. No recess
sion came and the above-men-
toned critics were later charac-
terized by Secretary Humphrey as
prophets of gloom and doom"
Today, it should be noted. it is
not the Eisenhower administration
Wnlch is being berated for the
higher interest rates. Rather II is
the Federal Reserve Board, most of
whose members received their iobs
under Democratic administrations,
Whereas all through World War II
the board submitted to Treasury
domination and, to ease the prob
lem OF war financing, pegged the
long-term interest rate at 81 per
cent so as to stabilize the price of
Government bonds, during the Tru-
man administration the board re-
covered its freedom of action.
Defended by President
Although the administration did
not approve of the money tighten
ing discount rate hikes of April,
President Eisenhower later de-
tended the boards action. It would
be a mistake, he said, to subject the
board to the political head of the
state. The interest rate hikes, he
added, had been unanimously rec
commended by the IL Federal Re-
serve banks.
I do have this confidence in the
Federal Reserve Board: They are
watching this situation day by day."
the President said. They are
watching whether money dries up.
because there are two things about
money twhen. discount rates are
raised: One, it gets a little dearer
In It's cost to the borrower; the
other is that it is just not there to
borrow. And they are watching it
very closely, and personally believe
that If money gets too tight,
they will move in the other direc-
ton in some way or other as soon
as they can
Whether the congressional SUBJ
committee chairman, Representa-
tive Wright Patman. Democrat of
Texas, will be as readily satisfied
as the President remains to be seen.
Mr.. Patman has long been a critical
prober OF Federal Reserve activi-
ties He is staunch foe Of hard
money" meaning money that is
hard to get, and, some would have
1t. an infiationist. The Board has
often vexed Mr.. Patman by its ac-
tons and secrecy; and he, doubt
less, has vexed the Board.
The disagreement between the
Board and the Administration last
April found its way into the press
and caused Mr.. Patman to write
the major parties concerned for