Still on the Rise

To many businessmen, worried about soft spots in the economy, the nation's bankers last week gave solid reassurance of the continued strength of the boom. The demand for credit for expansion of all kinds is still so great--and money so tight--that Manhattan's Bankers Trust Co. boosted its prime rate for loans from 4% to 4 1/2%. Banks around the country soon followed. Two days later the Federal Reserve Board approved a boost in the discount rate by four of its twelve district banks from 3% to 3 1/2%. The new Fed rates, highest since 1933, were designed to bring the Fed's scale more in line with commercial loan rates and to discourage bankers from borrowing from the Fed to increase their loans to clamoring private borrowers.

The Fed had hoped to put off its increase, the seventh since April 1955 (when the rate was 1 1/2%) until fall to make it easier for the Treasury to refinance the $8.1 billion debt coming due in September and October. But the increase in prime rates, plus the fact that borrowings from the Federal Reserve system had soared from $553 million to $1 billion in one week forced the Fed's hand. This seemed solid evidence to the Federal Reserve Board that the real danger is still inflation--and the boom still has plenty of steam in it.

Other Government agencies moved last week to raise other interest rates to the market level. The Federal National Mortgage Association offered a $165 million issue of secondary market debentures at 4 3/8%, its highest rate ever. The Federal Housing Administration, aiming to attract money for homebuilding, increased maximum interest rates on FHA-backed mortgages from 5% to 5 1/4%. And to woo more buyers from middle--and even low --income groups, it slashed down-payment requirements from 5% on the first $9,000 to 3% on the first $10,000 of a mortgage.

Most builders were cheered by the changes. Said Levittown Builder William J. Levitt: "The new terms are a healthy stimulant to housing. They will enable the homebuilding industry to pull out of its nose dive starting right now, and housing starts should climb well over the 1,000,000 mark next year."

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