Finance: Restraint Without Imbalance

Expansion in economic activity combined with accelerated price inflation last year to sustain the strong demands for credit and money that characterized 1977. Credit flows, spurred by growth in business and household borrowings, reached a new high, although the rate of increase was sharply less than in the two previous years. In an effort to reduce inflationary pressures from excessive expansion in money and credit and stabilize the dollar in the international exchange markets, the Federal Reserve was less accommodative in providing reserves to the banking system. Moreover, the discount rate was raised to the highest level in its history.