Markets move sharply again after Fed’s move on inflation

Press, 11 October 1979, Page 29

Markets move sharply again after Fed’s move on inflation

INZPA Washington! President Carter has ivowed to support the Fed-' eral Reserve Board, despite ; i risks of a deeper recession, I land said he has no intention' I of changing his anti-inflation ' policy. I Mr Carter told a nat-l [tonally broadcast news con-: Terence on Tuesday that he I ! would do whatever it take,s I ' even if it hurts him politically. to beat soaring inflation, which he called the nation's number-one threat. ; The Federal Reserves Board, on Saturday, took action to slow the growth of i credit, support the dollar’s; value, and calm the hyper-| active gold market. The Fed-: eral increased its lending rate to banks from 11 per i cent to 12 per cent, and al-; tered the way it controlsi i money and credit. These actions caused an‘i upsurge in other short-term-interest rates. Chase Man-1; hattan, the third-largest ■' United States bank, increased the rate it charges (

I its best customers from 13.5 per cent to 14.5 per cent, and other banks are expected to raise their rates also. The Fed’s actions have in(creased the dollar’s strength on world markets this week, , and gold prices, after skyI rocketing in recent weeks, bad fallen $5O an ounce to $390 an ounce. Mr Carter said that the ; dollar’s value is “within the bounds of management.” As for gold, “I don't see any threat to the well being of any American, because of i the rapidly increasing price of gold.” he said. Mr Carter acknowledged, 'that the United States rate! [of inflation has been surpris-; png. Administration officials I earlier this year had hoped! to keep' inflation far below 1 double digits for the year. However, it currently ex-! ceeds 13 per cent, and last! ■month’s wholesale prices! (jumped 1.4 per cent. The President defended his: anti-inflation programme, in-! eluding voluntary wage and

price guidelines, as well-con-ceived. He said: “we don’t intend to change our basic policy.” The dollar rose on world money markets again on Tuesday, continuing the boost it received from the week-end's announcement in Washington. In Frankfurt, dealers on (the West German foreign (exchange reported that the [United States currency’s sharp rise went into its second day, reaching 1.8147 marks at one point — the ■ first time the dollar has traded above 1.80 marks since its latest slide began [on September 19. ! The West German Finance [Minister (Hans Matthoefer) ’described the package by the (United States Federal Reserve as an important step [in stabilising the dollar. He [said the measures went right Ito the heart of the dollar problem. In New York stock prices plunged in one of the sharpest drops in years, as a

• [surge in United States inter-! tlest rates jolted the market. I : I The Dow Jones average of; 130 industrials, after a 13.57 j( point decline on Monday, 1 ; was down another 26 points /half an hour before the end /of trading on Tuesday, ij The last time the average [suffered a decline of that /size was on January 9. 1974. i: when it fell 26.99 points in Gthe midst of the last reces/sion. and the Arab oil em- . i bargo. '! The late-afternoon tally of i [ New York stock exchange (issues showed more than s! 1600 declines, and only 75 i ladvances. : The raising of prime lenriding rates from 13.5 per > cent to 14.5 per cent came rias a shock to Wall Street. •[Analysts said that interest - i rates had been expected to /rise, but not so rapidly, i; Bank stocks were among! '[the bardest-hit. Also under pressure were the savings :(and loan companies which ■ are usually sensitive to ‘trends in interest rates.