A tug-of-war seems to be shaping up between the Federal Reserve Board and the amorphous group of credit users and providers called the "market."
While the central bank apparently tries to keep interest rates high to ensure it has control of the money supply, the suppliers and demanders of credit -- especially corporation and some banks -- seem to be saying that rates have to fall.
Banks are both wary of the Fed's intentions and interested in recouping some profits they lost during the giddying interest rate climb in November and early December. They so far have been reluctant to lower their lending rates at a time when the cost of funds to banks has declined sharply.
But unless there is a solution rise in loan demand or a renewed panic about inflation that sends interest rates in the open market back on an upward course, most analysts think interest rates will decline.
Already New York's Chemical Bank, citing a belief that short-term rates have nowhere else to go but down, lowered its prime lending rate from 20 1/2 to 19 1/2 percent (a rate that still sounds unconscionalby high).
The central bank, however, seems to be trying to buck the trend to lower rates, although there is always confusion about the Fed's intentions and the central bank never tells, until a month afterward.
Earlier this week when short-term securities such as bank certificates of deposit were trading in the 16 percent range, the federal funds rate -- the cost of money banks lend each other overnight -- was trading in the 20 percent range.
The federal funds rate is one over which the Federal Reserve can exercise substantial control through it buying and selling of government securities in the open market. The Fed, in its open market policy, tries to either add funds to the banking system or become tight and soak up funds banks might otherwise loan. The federal funds rate is seen as a proxy for the Fed's efforts.
All the central bank's activities of late have been aimed at keeping a tight money posture to reduce the amount of loans in order to cut the growth of money and the rate of inflation.
But banks obtain many of their open market funds from providers other than fellow banks with excess reserves to lend. The one-month, two-month and three-month borrowing rates are sharply lower than the federal funds rate.
The Fed, apparently, with all the influence it can muster, intends to fight the decline in interest rates, at least until it is convinced it has the money supply under control.
Most of the members of the Fed's monetary-policy-making open market committee seem to be convinced that the central bank did the economy a disservice last spring when it permitted and encouraged a sharp fall in interest rates as the economy slid into recession.
That decline was swift. The prime rate fell a then-record 20 percent to about 11 percent (some banks lowered it to 10 3/4 percent) between mid-April and mid-July.
But inflation, the object of all the arcane monetary antics, barely blinked during the the high-interest rate winter. The money supply began to explode again during August.
As a result, in the eyes of many economists, the Fed put the country through a high-interest wringer but stopped squeezing too soon. The recession may have been the briefest on record, but its anti-inflation payoff was negligible. It was as if the patient took only half the prescribed series of agonizing rabies inoculations.
The Fed cannot be blamed totally for high interest rates, although the Carter administration tried late in the campaign.
In order to protect certain industries -- noticeably housing related -- Congress has created new savings instruments and sources of credit that make difficult to slow borrowing. Both businesses and consumers have become so inured to high rates of interest and inflation that they are less deterred by "tight money" than they would have been a decade ago.
Furthermore, the central bank faces serious problems trying to control a money supply it cannot measure with precisely.