January 8, 1963 FOMC Minutes

FOMC minutes

In reply to a question, Mr. Young said it was the intent to indicate that Committee policy would be designed to accommodate a rate of growth of bank credit more moderate than in recent months, particularly since August, in contrast to the past year as a whole. Mr. Wayne suggested that the interpretation just given by Mr. Young would flow naturally from the economic background paragraphs that Mr. Young had read earlier. Mr. Deming then supplemented his previous comments by expressing the view that it would be preferable to indicate in the first paragraph of the directive that the Committee was continuing to pursue a moderately stimulative program. The second paragraph of the directive would then specify in rather concrete terms what the Committee was instructing the Account Manager to do in the period just ahead. Mr. Deming brought out, by way of illustration of his point regarding the first paragraph, that the Committee did not know, in fact, just why the money supply had grown at such a fast rate in recent months. It was conceivable that a further substantial expansion in the money supply would occur. then called on the Account Manager for comments, and The Chairman said he would interpret the first paragraph of the Committee Mr. Stone directive as a statement of the Committee's general objectives, with an factors that impelled it to choose these objectives rather indication of than others. He would understand that the second paragraph contained an instruction to the Desk on implementing, within a specified time period,

the general objectives outlined in the first paragraph. He would interpret the directive, as just adopted by the Committee, as calling for operations with a view to providing for moderate reserve expansion in the banking system, as indicated in the second paragraph. Mr. Deming then commented that, as he had previously indicated, he had no quarrel with the second paragraph. In the first paragraph, however, if the Committee's general objectives were tied to bank credit and the money supply the Committee would uncertake to deal with matters over which it did not have direct control. In his opinion this problem could be met by using a phrase in the first paragraph something like: "It is the current policy of the Federal Open Market Committee to continue to pursue a moderately stimulative program while aiming at money market conditions that would minimize capital outflows internationally." Such a generalized statement would in his view be reasonable, whereas he did not like to cite as a policy objective something that might not be attainable by the Committee. Mr. Young noted that one of the problems in having two paragraphs the question of broader and one more specific--was in the directive--one which in the first paragraph were longer range and in time dimensions, paragraph related to a specific short-run period. the second expressed himself as having some sympathy with the Mr. Balderston point made by Mr. Deming. It was somewhat the same as the point that had by Mr. Knipe: that the supply of bank reserves was controlled been made

by the Federal Reserve System while the money supply was merely influenced by the System, given sufficient time. Mr. Balderston sug gested along these lines that the first part of the directive adopted today might have been somewhat simplified. He agreed that Committee policy was aimed at money market conditions that would minimize capital outflows internationally; thus, it might have been appropriate also to say that Committee policy was "aiming" at a further moderate growth in and the money supply. He was not sure that at a large bank credit meeting it was feasible to develop precise wording, but he would like to suggest that the Secretary try his hand at something along the lines Mr. Deming had proposed. further discussion, Chairman Martin observed that the Committee In at its next meeting to take a look at the would have another opportunity in the light of the discussion that had taken place form of the directive on the problem, it might be possible to today. Through steady work This all tied into the problem of explaining System achieve improvement. and the System must make every policy to the Congress and the public, to do the best job. effort discussion during which certain further There followed additional to the possibility of amending the suggestions were made with respect adopted. One suggestion was to directive that had previously been policy of the domestic economy as showing slight characterize the progress

improvement but continuing at an unsatisfactory level. Another suggestion was to specify that it was the Committee's policy to accom modate further growth in bank credit and the money supply, although at a more moderate rate of increase than in "recent months." At the con clusion of the discussion, however, it was the consensus that the direc tive should be left in the form in which it had been adopted earlier in the meeting. It was agreed that the next meeting of the Open Market Committee would be held on Tuesday, January 29, 19 3, and that succeeding meetings would be scheduled tentatively for February 12 and March 5, 1963. The meeting then adjourned. Secretary