Business: Loosening the Reins?

"Running credit policy is like walking a tightrope," said a top Cabinet official last week. "You almost always lean one way or the other. Last summer we were leaning too far toward inflation. Now we are taking a new look to see if we are leaning the other way."

By last week the Administration's policy of tightening credit, city by city, in the major Federal, Reserve districts had finally taken hold. The cost of borrowing money all over the nation had risen, causing a decline in available credit. Member banks of the Federal Reserve were shorter of loanable funds than at any time since the spring of 1953. In the field of consumer credit, the trend of loans was still up (to $34,293,000,000), but the climb was leveling out. Installment debt rose in September to a new high (of $26,699,000,000) for the eighth straight month, but the increase was the smallest since April and well below the average $660 million for the last four months.

Last week, as the nation's builders clamored over the drop in housing starts caused by the tightening of mortgage money (see above). Housing Administrator Albert Cole promised the Mortgage Bankers Convention in Los Angeles: "I can assure you ... the hands that tightened the rein will not hesitate to loosen it when and as conditions so recommend."

On the heels of this, proponents of loosening credit received support from an unexpected and highly regarded source. In one of his infrequent speeches, Henry C. Alexander, new board chairman of J. P. Morgan & Co. (see below), and a member of the Federal Advisory Council which counsels the Federal Reserve System, said: "Maybe we should be thinking in terms of somewhat less restraint. If I were writing the rule or coining the slogan for monetary policy, I would say: 'Easy does it.' "

There were other signs that the nation's money managers were no longer thinking in terms of further credit restraints. One big reason: the illness of President Eisenhower had done as much as any FRB action to prick the speculative bubble on the boom. In fact, indications were that U.S. credit might be eased, perhaps in January, after the Christmas buying rush.