January 9, 1962 FOMC Minutes

FOMC minutes

had been prepared by the Secretary, Account Manager, and Economist. The draft read as follows: It is the current policy of the Committee to permit further bank credit and monetary expansion so as to promote fuller utilization of the economy's resources, together with money market conditions consistent with the needs of an expanding domestic economy, taking into account this country's adverse balance of payments as well as the Treasury financing calendar. To implement this policy, operations for the System Open Market Account during the next two weeks shall be conducted with a view to maintaining the generally less easy monetary conditions that have prevailed in recent weeks, and to continuing the rate on three-month Treasury bills within the recent range, without overt action to change unduly the supply of reserves or the level of interest rates. In reply to a question whether the Account Manager felt that he could operate satisfactorily under a directive along the lines drafted, Mr. Rouse stated that he could. that ensued concerning the language of the proposed In a discussion directive, certain changes were suggested. It developed that a majority favored eliminating the final clause, beginning with the words "without overt action," Those supporting the elimination of this language suggested, in essence, that it was unnecessary or redundant in view of the that it might convey unintended implications, and preceding phraseology, Manager if certain actions were deemed necessary that it might inhibit the other portions of the directive. A minority view, favoring to carry out language, was based on the thought that the language had retention of the been included in the directive issued following the December 19 meeting, that its elimination of this particular time might be misunderstood, and

that it pointed up the desire of the Committee that an even keel be maintained during the forthcoming two weeks. There was general agreement with a suggestion that the words "generally less easy" be stricken from the portion of the directive referring to conditions that had prevailed in recent weeks, and that the Desk should seek to maintain during the ensuing two weeks, inasmuch as those words would seem to convey the impression of a more pronounced shift in money market conditions than the Committee had had in mind at the December 19 meeting, and possibly also the impression that same further shift was contemplated during the next two weeks. There was likewise general agreement with a suggestion that the term "money market conditions," as used in the first paragraph of the draft, be changed to "monetary conditions," and that, conversely, the term "monetary conditions," as used in the second paragraph, be changed to "money market conditions." In the course of the comments on the directive, Mr. Mills recalled that at the December 19 meeting he had dissented from the adoption of a procedure whereby the policy directive, in its then-existing form, would be separated into a continuing authority directive and a current policy directive, with the latter to be drafted and acted upon before the adjournment of each meeting. He felt that his grounds for dissent were validated by the difficulty being experienced in issuing a current policy directive, as exemplified by the discussion that had occurred today regarding

the directive issued following the December 19 meeting. However, inasmuch as a majority of the Committee had adopted the procedure, he would comment on the draft directive now before the Committee for consideration. He felt that there was a conflict in terms and tone as between the first and second paragraphs. In the first, reference was made to permitting further bank credit and monetary expansion so as to promote fuller utilization of the economy's resources, whereas the second paragraph indicated that there should be less ease. He would prefer, in the first paragraph, to say that the Committee' s current policy was to "permit further expansion of bank loans, together with money market conditions consistent with the needs of an expanding domestic economy, . . ." Mr. Shepardson indicated that he was inclined to agree with Mr. Mills. Mr. Robertson said that he opposed the pinning of monetary policy to a bill rate, although his objection would not be as strong at a time, like the present, when the Committee was seeking to maintain an even keel. He favored retention of the words admonishing against overt suggested that the word "alter" be substituted for "change action, but unduly." to the changes that had been suggested in the first With reference out that changes from the preceding direcparagraph, Mr. Robertson pointed might seem to indicate an actual shift in policy tive, if made at this time, rather than an intent to maintain an even keel, and other Committee members expressed agreement.

Further comments included discussion of a question raised by Mr. King as to whether the language of the draft directive implied too much power on the part of the Federal Reserve to control the bill rate. Several additional suggestions then were made for amendment of the draft directive with a view to reflecting clearly the current policy of the Committee and the manner of its implementation for the next two weeks. The language set forth hereinafter was then suggested and was read in full by the Secretary, following which the Chairman inquired whether anyone would wish to be recorded as dissenting from the issuance of a directive phrased in such manner, and no indications of dissent were heard. Accordingly, the Federal Reserve Bank of New York was authorized and directed, until otherwise directed by the Committee, to execute transactions for the System Open Market Account in accordance with the following current economic policy directive: It is the current policy of the Committee to permit further bank credit and monetary expansion so as to promote fuller utilization of the economy' s resources, together with monetary conditions consistent with the needs of an expanding domestic economy, taking into account this country's adverse balance of payments as well as the Treasury financing calendar. To implement this policy, operations for the System Open Market Account during the next two weeks shall be conducted with a view to maintaining current money market conditions, without action to alter the level of interest rates. Votes for this action: Messrs. Martin, Balderston, Irons, King, Mills, Mitchell, Robertson, Shepardson, Swan, Wayne, Fulton, and Treiber. Votes against this action: None. The meeting then adjourned. Secretary