Rift with the Fed

Treasury Secretary Robert Anderson won his first victory last week in his campaign to remove the 4 1/4% interest-rate ceiling on long-term Government bonds. The House Ways & Means Committee approved a bill to permit the President to ignore the ceiling when necessary to sell bonds. The committee tacked on an amendment expressing the "sense of Congress" that the Federal Reserve Board should expand the nation's credit supply by pegging the price of Government bonds. Cried Fed Chairman William McChesney Martin Jr.: "This is an attack on the independence of the Federal Reserve Board. This is a directive for printing-press money."

Behind Martin's alarm lay an attempt by easy-money advocates in Congress to use the Government's bond crisis (TIME, June 15) to put pressure on the Federal Reserve Board to go back to the wartime policy of supporting the market for Government bonds. The Fed now buys short-term Treasury bills only. The Fed believes that if it bought bonds now, without wartime controls on spending, it would pump new money into the economy, thus nullifying its attempts to control the boom by tightening credit.

Easy-money Democrats, led by Congressman Lee Metcalf of Montana, insisted on an amendment recognizing the Federal Reserve's "primary mission" of administering sound money, but demanded that the Fed "bring about needed future monetary expansion" by buying Government securities of varying maturities instead of, as it has been doing, lowering reserve requirements.

The Treasury announced that it could ive with the bill, but the Fed's Martin urged the Treasury not to let Congress make a start at dictating the independent Fed's monetary policy. Martin pointed out that it would be very bad for the Government's credit if the financial community, here and abroad, got the idea that the U.S. had officially embarked on a soft-money policy. At week's end the Treasury was swinging around to Martin's stand, felt that taking the Metcalf amendment was worse than having no bill at all.

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