Money policy operates primarily within the financial markets and, despite improvements in technique over the years, remains inequitable, slow and uncertain in its effects on the economy. It is a very imperfect substitute for fiscal policy, which has a direct effect on income and demand, and the wisdom of tightening money policy harder to compensate for the absence of appropriate fiscal policy is questionable.
Money policy does not have a direct effect on the forces making for cost-push inflation, which in any event seem weaker than during the 1950s. The economy faces the risks of both price inflation and recession over the next 12 months, with much depending on the uncertainties of war. The risks of the current unprecedented money tightness appear to outweigh the rewards and, regardless of what is done in the fiscal area, a somewhat easier money policy seems appropriate.