Easier Credit

After two months of seesaw argument and close study, the Federal Reserve Board took another sounding of the U.S. economy last week and gently started loosening its credit reins. In the biggest buying since March, FRB went quietly into the open market, added $196 million to its holdings of Treasury bills (maturing in 90 to 92 days), thus released more bank funds for loans to busi ness. As one result, the highly sensitive Treasury bill interest rate dropped from 2.7% to 2.6%.

Characteristically, the Federal Reserve and its Chairman William McChesney Martin Jr. said little about the operation, but the rest of official Washington greeted the news with cheers. Critics of FRB's previous tight policy took it as a distinct shift in FRB's thinking. Said one official: "The Federal Reserve is waking up to the facts of life. We've had too much choking off of economic activity." Actually, loans were no cheaper, but the FRB had increased the availability of credit at a time when businessmen could use more funds, notably to help pay off June tax bills.

The shift helped spark the stock market to a sharp recovery from its long slide, pushed stocks on the Dow-Jones industrial averages to 480.63 by week's end, winning back 8.14 points and 36% of the previous week's loss. With the prospect of a further easing of credit if necessary, home builders expected at least to maintain their current rate of 1,100.000 houses annually v. 1.300,000 in 1955, perhaps even step up building a notch or two. Commerce Department figures for April also showed that while overall wholesale trade declined 3% in April, it was still 8% above the comparable month of 1955; nondurable goods were 5% below March but 4% higher than April 1955, while durable goods averaged 13% higher than a year ago. Both might get some help from the slight easing of credit. As for Detroit's automakers, they were finally starting to nibble away at the record inventory of 905,000 unsold cars. With new-car sales of 500,000 units a month, dealers cut their new-car inventories to an estimated 825,000 cars on May 31. hoped to continue cutting them by 75,000 to 100,000 a month.

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