Business: Fed Flight

Anti-inflation line besieged

Washington's chief line of defense against inflation remains the nation's central bank, the Federal Reserve. It controls the money supply by manipulating key interest rates and telling private institutions belonging to the Federal Reserve System how much of the cash they have on deposit must not be lent out. Alas, this line is slowly crumbling. While 5,450 banks remain in the system, in the past 4½ years some 300 have left it. Most have been small banks, but there have been some big defectors too, among them Pennsylvania's National Central Bank, which has deposits of $1.5 billion. Federal...

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