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BQaKD OF uOV»OE5 OF THE fiESBftVl SïSTëM Statement for the Press For immediate release July 1949. vMEMMI BY UOVEMOR ECÇUiS tome ne&spaper reports have erroneously inaic&ted that X disagreed with the Federal Open Market Coj&nittee^ announcement last week of a policy of greater f l e x i b i l i t y in open market transactions with a view to a further easing of bank credit. I strongly favored the policy, as an appropriate step in a time of credit contraction, because i t permits the automatic re-» lease of aoout $800,000,000 of reserves on June 30 to take effect in the money market without being nullified by open market sales from the System's p o r t f o l i o , as far as practicable, the market will be free to determine prices and yields without the intervention of the federal Open Market Committee. Since fee h«ve had easy money conditions %ith relatively lofc rateb a i l along in the money market i t should not be supposed that fatill easier conditions with lower rates will correct or cure a deflationary trend, a l though they say encourage greater use of the existing money supply end put the banks in a position mere they will have s t i l l less reason to restrict credit. To the extent that the Reserve System becomes a reluctant seller of i t s holdings of Government securities banks may be more disposed to ¡sake productive loans t o private borrowers or at least avoid putting pressure on good borrowers to pay o f f loans. Monetary policy cannot, of course, make lenders lend or borrowers borrow; i t cannot correct maladjustment s within the economic structure which have arisen from non-monetary causes. It cannot by i t s e l f bring about the very necessary price uid other readjustments within the economy. The liquidity of the economy today i s unprecedented and the consuming public, investors, <*nd financing institutions of a l l kinds are in stronger financial position than ever before, i t clear, therefore, that with the existence of this condition of underlying strength the only change in monetary and credit policy that needs to take place i s in the emphasis and direction of Federal Reserve actions towards relaxation rather than restraint.
@FedFRASER