How Cool Is Too Cool?

"Do you see any indicators that are going up today?" asked Delaware's Republican Senator John Williams last week of William McChesney Martin, chairman of the Federal Reserve Board. As it happened, Martin was stuck for an answer. Whereupon Nebraska's Republican Senator Carl Curtis sniped: "Yes, the deficit."

What was significant about that exchange was that Bill Martin, testifying before the Senate Finance Committee in support of restoring the 7% tax credit on new plant and equipment, seemed worried about the possibility that the U.S. economy has perhaps cooled off too much. "There has been a slowing down," he admitted, "although I see no recession in the slowdown."

Incredulity. Even as Martin was talking to the Senators, Treasury Secretary Henry Fowler was insisting to the House Ways and Means Committee that the Administration had not proposed restoration of the investment credit "because of any concern about the general economy." His statement met with some incredulity. Snapped Oregon's Democratic Representative Al Ullman: "I don't think there is anyone in this room that really believes that." His observation gained substance from the news that last month personal income all but ceased its longtime rise and private payrolls declined for the first time in two years.

Even as the Administration was feeling the discomfort of an economic credibility gap on Capitol Hill, it received some good news from the private sector. On Wednesday, New York's Morgan Guaranty Trust Co. reduced the prime interest rate that it charges its best business customers from 5 3/4% to 5 1/2%. Coming almost two months to the clay since the Chase Manhattan set off a controversy by cutting its prime rate to the same level, Morgan's action is expected to be followed by most of the country's commercial banks. Their action, it is hoped, will accelerate the drop in home-mortgage interest rates and give homebuilding a boost. In another development that should have much the same effect, California's Bank of America, the nation's largest, announced an across the board reduction of interest charges on home-mortgage loans.

A Little Shove. The high mortgage rates of savings and loan associations have continued to nag the Administration. As Home Loan Bank Board Chairman John Horne testified recently, the Government may give the associations and banks a little shove unless the rates drop to a lower level.

Last week Governor Andrew Brimmer, the Fed's leading speechmaker, addressed a Los Angeles Town Hall audience on the S & L problem. Using strong language, Brimmer put part of the blame for last year's S & L doldrums on the industry's inflexible rate structure and, in some cases, on poor management. One solution, said Brimmer, who was speaking strictly for himself, is to let S & Ls swing more freely with monetary supply and demand. He also suggested that S & Ls should be given a broader lending role. "The 1966 experience," said Brimmer, "stands as a haunting reminder that S & Ls do not have the capability to compete freely for savings with commercial banks and market instruments when interest rates rise sharply."

This file is automatically generated by a robot program, so reader's discretion is required.