Current Situation

Undoubtedly the most spectacular occurrence of the past week has been the precipitate fall in many rates throughout the country, but especially in Wall Street. Call money had already broken 3%, and the New York Reserve had reduced its rate to 4%. A year ago this would have resulted in the withdrawal of out-of-town balances from New York, and a consequent stiffening of the local money rates. This time, however, the country everywhere had an oversupply of funds. Hence, in the last week, all money descended to 2% for the first time in six years, while the New York Reserve further reduced its rate to 3 1/2%, the lowest rate on record. Its example was soon followed by cuts in the rates of other Reserve Banks over the country. Not only is money cheap and plentiful, but prospects now are that it will remain so for some time.

The most immediate effect of this smash in interest rates has been seen in the stockmarket, where bonds, sound preferred stocks and other investment securities at once scored in a sudden expanse of trading. Several new highs were recorded in foreign and domestic bonds, led by U. S. Liberties, while utility stocks of good character have been markedly strong. Rails also advanced, accompanied by renewed talk of coming consolidations which easy money should facilitate. But the almost universal enthusiasm still left the industrial stocks, and even many industrial bonds, rather severely alone. They were judged in too vulnerable and speculative a position to be readily affected merely by money rate changes.

When the economic history of 1924 is written, the events in the money market of last week will be stressed as marking the beginning of a new and more hopeful part of the recurrent cycle of business.