Reserve Rate

Financial opinion is divided into two hostile camps on the question as to whether the present 4 1/2% rediscount rate of the Federal Reserve banks can and should be maintained, in the face of many factors which would normally make for a speedy reduction in the rate.

One school, which includes the stock market fraternity, favors lower rates largely on the basis that it would provide a cause for an advance in the prices of bonds and other fixed investment securities, as well as for a speculative fillip to the general stock market. Borrowers of money generally, however, favor a rate reduction.

The other party believe the present rate should be kept up, lest cheap money lead to inflation. The Reserve authorities were severely criticised for not establishing a high rate in 1920, and apparently they wish to avoid such criticism in the future, especially in the The of our present large gold reserves.

Money is easy now, although this is largely a seasonal condition, and signs of an increasing demand have, to some extent, been already evidenced. The critical situation in the Northwest may, however, produce political pressure on the Reserve to lower its rate. Even the Minneapolis Reserve Bank has a reserve ratio of almost 80%--a very high figure. But the Reserve officials evidently intend to feel their way cautiously, to adopt in part a policy of "watchful waiting." Their greatest fear is inflation; and with our huge unused gold reserves, it is something to be watched.