Changes in Margin Requirements and Stock Market Prices

Abstract

Inasmuch as stabilization of economic activity in our country is one of the main functions of the Board, it must be taken for granted that the changes in margin requirements were not haphazard, but rather that both the magnitudes of the changes and their timing were determined on the basis of important considerationsamong which the economic conditions in the country and the sentiments and activity on the stock exchanges played a predominant role. In other words, the changes in the margin rates must be viewed not in the narrow sense, namely, as an attack by the Fed on the credit conditions in one limited sector of the economy (the stock market), but in a broader perspective as part of an across-the-board policy carried through by means of this and other measures, and having the stabilization of the economic life of our country as its main goal.' Therefore, whatever the purpose and intent, stated or unstated, of the Fed's action,2 we should anticipate that the changes in margin requirements will not leave unaffected the level of activity on the exchanges, and in consequence the level of stock prices3 and indirectly the economic climate of the country.4