Recent Monetary Reversals

In the several years up to the middle of last fall, the Federal Reserve was increasing the stock of money of the nation inordinately. This rapid growth of money has been the major cause of rapid and increasing inflation and reduction in the rate of growth of money was long overdue in order for inflation to be moderated. But instead of a reasonable moderate monetary growth, which this Committee recommended last September, the Federal Reserve, about November 1, instituted a sudden and inordinate reversal of monetary policy. Since October narrowly defined money (Ml) has declined at a 2 percent annual rate, after increasing 7.8 percent in the preceding year. Money more broadly defined (M2) has grown at a 2 percent rate, after increasing 8.7 percent in the preceding year. The monetary base has grown at a 6 percent rate compared with 9.7 percent in the preceding year. This sudden extremely tight monetary policy may lead us in the future to an unnecessarily acute recession, and the longer the present excessively restrictive policy continues the greater the likelihood and severity of such a recession. We recommend that the degree of restraint on monetary growth be moderated immediately