Monetary Policy And Inflationary Pressure
Watch on the Economy to Ward Off Inflation
Satisfaction of the general public at receiving an $11.5 billion tax cut has tended to conceal concern among some economists lest so large a dose of added purchasing power over-stimulate the economy. Although prices have not risen to any marked extent since the tax reduction was made effective two months ago, not enough time has elapsed to dispel all fear that the supply of goods and services may fail to expand fast enough to absorb the increase in purchasing power and prevent generation of an upward price spiral. Attention is being given, therefore, to the mechanisms of monetary policy through which inflation may be restrained by regulating the flow of money and credit in the economy.
By tightening credit, the Federal Resei've Board can help to dampen pressures that push up prices. But the nation's central bankers would run the risk of diluting the economic stimulus afforded by the tax cut if they acted prematurely or applied excessive restraints. Federal Reserve officials do not wish to move at cross-purposes with the national administration. However, they are not likely to abdicate their legal responsibility to take action deemed necessary to maintain a stable economy.
Credit-tightening steps in an election year would not be applauded in Congress. Easy-money forces there already are pressing proposals to change the size, composition and structure of the Federal Reserve System to assure “closer coordination of monetary and fiscal policies.” Other legislators see these measures as a direct threat to the independent status of the “Fed.” Twelve Republican members of the House Banking and Currency Committee charged, Jan. 21, that certain of the bills introduced by the committee's chairman, Rep. Wright Patman (D Texas), and others made it” adequately clear that certain members of the administration are embarking on a path of attempted domination of the monetary authority by Congress and of inflation to try to curb the economic ills of the nation both real and imaginary.”