The nation's third largest bank raised its prime lending rate from 9 3/4 percent to 10 percent yesterday, bolstering the fears of some administration analysts that the steady climb in short-term interest rates could choke off the current economic expansion.
Other major banks are expected to follow the lead of New York's Chase Manhattan Bank within the next few days.
At 10 percent, the prime rate is at its highest level since early 1975, when the rate was declining from mid-1974 peak of 12 percent during the credit crunch that helped precipitate the severe 1974-75 recession.
The prime rate is the interest banks charge their best corporate customers for a short-term loan.
In other developments yesterday:
The Labor Department reported that after inflation is taken into account, full-time American workers are making less today than they were five years ago, although their real earnings are about 7 percent higher than they were in 1967.
Black workers, although still earning less than their white counterparts, have done relatively better. Since 1967 the real earnings of blacks working full-time have risen 22 percent. Real earnings for white workers rose 5 percent during the same period.
When part-time workers are factored in, however, the real incomes of all American workers shows almost no gain over the last 11 years because of the rising cost of living.
The Democratic majority on the congressional Joint Economic Committee said that the nation's economic prospects have deteriorated since last spring, in part because of continuing high inflation and the Federal Reserve Board's actions to raise interest rates to fight that inflation.
The high-level administration economic policy group met yesterday morning but took no further action on the President's new anti-inflation program. The program, which is expected to set guidelines for acceptable wage and price behavior, is likely to be announced next week.
Presidential inflation counselor Robert S. Strauss warned that inflation is getting worse and said the new anti-inflation program "will require greater austerity and discipline from every segment of the American economy."
Yesterday's increase in the prime rate was the fourth such rise in the last month and the ninth time it has increased since January, when most banks were charging 8 percent.
The prime rate has been rising in the response to strong credit demand by businesses as well as to ever-tighter monetary policy from the Federal Reserve Board.
The central bank has been trying to make borrowing more expensive in order to slow down the growth of the money supply and restrain inflation.
But so far the Fed seems to be having little impact on either, although it has raised its key interest rate - the federal funds rate - by two full percentage points since late April.
The Fed affects the federal funds rate - the interest banks charge each other for overnight loans of excess reserves - through its buying and selling of government securities in the open market.
Federal Reserve Board chairman G. William Miller has warned that unless the central bank gets some help in fighting inflation, the tight money policy he has been pursuing will inevitably lead the nation into a recession.
The administration is almost ready to announce a new "voluntary" anti-inflation program that is supposed to help take some of the heat off the Fed. The plan is expected to set a wage standard of 7 percent and a price goal of 5 3/4 percent for the next year.
But administration sources said the President has been focussing his attnetion on the tax bill that is now in conference between the House and Senate and will be unlikely to unveil his anti-inflation plan until at least the middle of next week and possibly later.
The economic policy group expects to meet on the anti-inflation program again next Monday or Tuesday.
The Joint Economic Committee, in its review of the economy, said that it anticipates the economy will grow no faster than 4 percent over the next year - about the rate that is needed merely to keep unemployment from rising - and that high interest rates will continue into next year.
The Democrats on the committee said that consumer prices will rise at least 7.5 percent this year. Administration officials such as Strauss say they expect inflation to be 8 percent or more.
The committee said that government policies will do little to stimulate economic growth next year and said that "the main burden of inflation control will fall once again on the Federal Reserve. Monetary policy will be dominated by concern with inflation and the international condition of the dollar and will therefore be restrictive."