COMM ITTEE REPORT

Recommendation

Juides tor
Credit Policy

(c) Attention should be directed to the development of skill in
management of the system of regional banks in preference to changes
in the structure or credit powers of the system.

The federal reserve system has not been provided with greater
resources than on occasion may be needed, nor have the administrarive
 bodies of the system been vested with too broad discretion as
regards regulation of the volume of reserve credit and currency.
This, however, does not appear to be the view of those who
advocate the adoption of precise guides for reserve credit policy.
A number of such guides have been suggested.

Some urge an amendment to the Act whereby the reserve banks
would be directed to employ their powers primarily for the purpose
 of realizing stability in commodity price levels. Others insist
that the reserve ratio should be the predominant factor in the detérmination
 of reserve policy. Still others believe that principal effort
should be exerted to regulate the course of speculation. There is
also a school of thought which emphasizes the importance of adapt-‘ng
 federal reserve policies to credit developments in the world
it large.

Price Level
nf Commodities

Factors
Affecting
Prices

As to price stability, there may arise situations in which it would
he generally agreed that the movement of prices might constitute
the most important single factor. Considerable changes in price
levels might serve to indicate whether credit is excessive or deficient
in volume. But the significance of moderate changes in prices, either
in an upward or downward direction, is difficult to diagnose. On
some occasions they may be attributable to other than credit factors,
and to the extent that this is true, harm would be occasioned by using
credit manipulation as a correction. A downward drift of prices, for
instance, might be due primarily to technical improvements in injustry.
 When the cause of these fluctuations is not clear and uniform
in its influence, a requirement in the Act that maintenance of the
stability of prices be a primary obligation upon the administration
of the system would be uneconomic and would inevitably invite
reprisals both public and political.
Even mild price movements in one direction if persisted in for
a long period of time must make considerable changes in the purchasing
 power of the dollar. To require the system to attempt to
keep the price level substantially unchanged would present an administrative
 problem impossible of solution. There can be no unanimity
 upon the precise causes of such a price trend or upon its
desirability or upon the many forces other than the credit supply that
may operate to alter it.

(Continued on page

2)