Interest rates jumped again yesterday as Chase Manhattan Bank announced another quarter-point rise in the prime rate to 10.5 percent.
And the Federal Reserve Board - in a highly unusual move - tightened credit another quarter-point in the face of a $6 billion Treasury debt offering.
The Fed's incerase in the federal funds rate target from 9 1/8 percent appeared to be a response to the week-long plunge in the dollar rather than a move for domestic purposes.
In Washington, Council on Wage and Price Stability Director Barry Bosworth told reporters "there is a limit on how high and how rapidly the Fed can afford to push interest rates up."
"I guess we're about close to the limit," he said, indicating another half-point in interest rates could begin to cause substantial outflows from savings institutions which in turn could weaken housing and set the stage for a recession.
But Bosworth's remarks came before the Fed kicked the federal funds rate up another quarter-point. The Fed tightening occurred early in the day and before the Treasury began the first of three days of debt financing this week.
Normally, when the Treasury is borrowing in the debt markets, the Fed keeps its interest rate targets steady so as not to undermine the financing. But the travails of the dollar appeared to spur the Fed action, though it was not clear why the Fed had not moved on Monday.
Analysts did not rule out further tightening this week as the Treasury continues to borrow, though they indicated this causes grave problems because investors find the price of their new notes and bonds is instantly marked down in response to the higher rates.
As a result of the tightening, the Treasury's auction of $2.5 billion in 3 1/2-year notes yielded a record 9.36 percent, about 3/8 of a percentage point above what analysts had expected as late as Friday.
Leonard Santow, senior vice president with J. Henry Schroder Bank & Trust Co., said he believed the Fed's Open Market Committee held a telephone meeting on Monday to deal with the dollar situation, and decided to tighten at that time.