Easier Money?

"I'm worried about the stock market," said Federal Reserve Board Chairman William McChesney Martin Jr. last week. "People might put it out of perspective. It's conceivable they could attach more importance to it economically than it really has, though I have no evidence of that yet."

Martin's concern was shared by many as the market fell lower. But at midweek, having fallen steadily for seven days to dip below 600 on the Dow-Jones industrial index for the first time in more than a year, the market staged a short-lived rally. It recovered a gain at week's end to close at 605.83, off just 3.96 for the week.

While there was a great deal of bearishness in Wall Street, there was still a strong difference of opinion about where the market was going. Many a broker felt that the decline had strengthened the market's stability by improving the price-earnings ratio of stocks and narrowing the spread in yields between stocks and bonds. (The spread has also been narrowed by the comeback of the bond market, which has caused the biggest drop in most bond yields in more than a year.) The market itself, having cleared its head of overoptimism, is now taking a more realistic look at business prospects for 1960.

These would be affected in some measure by the policies set by the Federal Reserve. From Martin last week came a significant statement that demand for credit so far this year had not been "quite as large as anticipated." This seemed to businessmen to imply that the Federal Reserve, recognizing that there will be no runaway boom, might now ease credit so that U.S. businessmen can more readily find funds for orderly growth. It is unlikely to take any big measures to ease the money market, which has already begun to ease on its own; but it can easily bring about a further relaxation by permitting member banks to borrow more. This could lead to a reduction of interest rates, encourage heavier business spending, especially in construction.

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