The Postcardiac Bulge

"The boom cannot continue at the pace set this year," warned Banker Howard C. Sheperd, chairman of the First National City Bank of New York. "We have to accept some slowing down and prevent inflation from leading us into a cycle of boom and bust." In Washington last week, the Federal Reserve Board agreed. Since April, FRB has been gently applying the credit brakes, has three times boosted the rediscount rate on funds borrowed by member banks. But now the FRB found that it must apply the brakes harder; the boom apparently has too much momentum to be easily slowed. Within 24 hours, six Federal Reserve Districts across the U.S. boosted the discount rate another 1/4%, to 2 1/2%; the other six will probably follow suit, putting the overall rate at the highest level in 21 years.

Pauses & Peaks. The Federal Reserve thought it had reason to worry about more inflation. The wait-and-see attitude that had shown up among some businessmen after President Eisenhower's illness had disappeared. Said one top FRB official: "After the 'cardiac pause,' I'd call the strong upward push this month the 'post-cardiac bulge.' " On the FRB's index, industrial production hit a record 142% of the 1947-49 average. Steelmakers were operating at 98.8% of capacity. Automakers rolled out the year's 7,000,000th car, an alltime record, and the schedules call for a 27% production increase in 1955's last two months over 1954's.

Despite all the production, demand was pushing prices steadily higher. Spot prices for metal were up to 118.3% of the 1947-49 average, a jump of 1% in less than a month. Wholesale prices for manufactured commodities rose .4% in October to 119.1% of the average; building materials hit a record 128.7% of the average. Businessmen talked of still more expansion, were going heavier into debt to help finance it. The Federal Reserve Board reported that borrowing by member banks increased to $1.2 billion last week v. $271 million last year. Commercial-bank loans were up to $78.5 billion, some $8 billion more than at the start of the year. National Steel Corp. Chairman Ernest Weir announced last week that his company would spend $200 million to boost capacity 17% by 1959. Economists predicted that U.S. business would spend a record $33.4 billion for new plants and facilities in 1956, some $4 billion more than this year. Split for the Bull. The stock market was in step. By last week, stocks on the New York Stock Exchange had made up virtually all the loss in September's break, pushed near alltime peaks. Led by Sears, Roebuck & Co., which jumped 7 1/8 points on news of a split, Dow-Jones industrials at one stage went up 2.19 points to 487.07, within .38 points of the bull-market high, closed the week at 482.91.

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