Business loan rates at Ninth District commercial banks have tended to slip more noticeably than consumer loan rates in recent weeks. At the same time, rates offered on consumer savings deposits have held steady while rates for large CDs have dropped precipitously; some banks have even stopped trying to attract large CDs. Liberalized depreciation rules, which were announced by the Treasury, are expected to have only a minimal impact on District manufacturing firms. There is no consensus among District community leaders regarding the current stance of monetary policy. Some people feel the Fed has moved too far too quickly on the side of ease while others prefer to see even lower interest rates.

To our knowledge, most major banks in the District have now reduced their prime rates to 6 percent, but other loan rates have not fallen accordingly. Loan rates to less-than-prime business customers have edged down in the wake of prime rate cuts, but reductions have been less than proportional. One reason given for this was that these rates did not rise as fast as the prime rate and, as a result, would probably not fall as fast. In addition, one director felt that even though there was money available, banks were still trying to maintain their rates and reducing them only to their low risk, old customers. One South Dakota director felt, however, that production credit associations are giving banks stiff competition, and that banks will have to reduce their rates sooner than they would like. In general, mortgage interest rates are slipping in the District, although rate levels still seem to be slightly higher than those in some sections of the country. The one exception to this is in South Dakota where one S&L quoted a rate of 7 percent on "real prime property." Consumer loan rates have slipped a little, but in the words of one bank director, "usury ceilings stopped them from going up, so consumer loan rates will be slower in coming down." Another director said that consumer loan rates in his area have not fallen because rates being offered for savings have not softened.

Commercial banks in the District are competing less vigorously for large CDs, and there are a few instances where banks are not even accepting large CDs. Rates on consumer savings deposits, however, have not shaded, although the banks and S&Ls would probably like to see them soften. One bank director from outside the Twin Cities said that savings rates in his area have not fallen, but that banks are constantly watching developments in Chicago and Minneapolis. An S&L officer also stated that his S&L would like to offer lower rates but is afraid that savers would move their funds to those institutions which would pay higher rates. To him, the only logical solution to the dilemma is for the FHLBB and FRB to lower ceiling rates on savings deposits.

The liberalized depreciation rules announced by the Treasury are not expected to significantly change District manufacturers' capital spending plans this year for at least three reasons. First, District manufacturers are not large enough to notice any significant changes in their cash flows as a result of the new rules. Second, the lag between planning and expenditures is such that manufacturers cannot immediately take advantage of the new rules. Third, manufacturers are already concerned about excess capacity. One director, however, thought that highway contractors are taking advantage of the new ruling, because in the long run liberalized depreciation rules turn out to be the difference between buying new equipment more cheaply and purchasing used machinery. Another director was aware of one case where the new rules will have a significant change on cash flows, but he thought it would not have a large effect on the company's spending plans.

The directors of the Bank were queried regarding their and other people's opinions concerning the current stance of monetary policy. Public opinion appears to be quite divergent. In general, those people who are even aware of monetary policy think that the Federal Reserve is acting "about right." The directors also are in general agreement with recent monetary policy actions although three directors voiced some doubts. Two directors wondered whether the Fed was moving too aggressively, and one of these questioned if this would not rekindle inflationary pressures later this year, especially in view of the major labor negotiations coming up. Another felt that monetary policy is too confusing and that the Fed should stay with one set of rules or another. Businessmen are confused and when this happens they become conservative in their actions.