Reserve Rates

The long-awaited trend toward higher money rates is at length plainly under way, at least so far as the Federal Reserve system is concerned. Until very recently the Reserve Banks of Boston, New York, Philadelphia, Cleveland and San Francisco were holding their rediscount rates at 3 1/2%, while the remaining seven* maintained a 4% rate. Suddenly the Boston institution led off with an advance to 4% (TIME, Nov. 23), and Cleveland almost immediately followed suit. Then the Philadelphia Bank directors met behind closed doors, and afterwards refused to make any announcements about what they had done. New York and San Francisco were still in the group.

The New York Bank is apparently loath to raise its rate lest it cause a similar rise of the Bank of England rate from 4% to 4 1/2%, to prevent export of British gold to the U.S. Also the Reserve system apparently feels that too much money is now being used in Wall Street, and that as a matter of policy financial speculation can be restrained by holding the New York Bank rate lower than rates of the other Banks, and thus forcing funds from New York to other U.S. centres.

Just how this experiment -- if it is a consciously formulated plan -- will work out, no one can quite tell; yet the fact remains that the rapid raising of Reserve rates has put a distinct crimp in the stock market, whose speculative favorites came in for a severe liquidation. The motor shares, recently so popular, have in particular slid off to new low prices on the movement, with the suggestion that the former lively speculation in them will not be resumed in the immediate future.

*At Richmond, Atlanta, Chicago. St. Louis, Minneapolis, Kansas City, Dallas.