February 12, 1963 FOMC Minutes

FOMC minutes

that the Committee was not changing policy at this time. Technically, the language might not be necessary at this stage. Chairman Martin commented that he thought a case could be made for retaining the clause on the grounds stated by Mr. Deming. He felt that the Committee should focus at each meeting on whether there was to be a change of policy in either direction. At this meeting it was clear that the Committee did not intend to make any change in policy. In further discussion, additional points were raised that suggested to those who presented them a preference for either retain ing or omitting the clause under consideration. Chairman Martin then commented that this discussion pointed up a recurring problem with regard to the formulation of the directive. As he had said on previous occasions, he doubted the efficacy of taking votes on questions of phraseology. Accordingly, he suggested that there might be simply an indication of preference on the part of the Committee for or against the retention of the particular clause under members discussion. The members of the Committee then expressed themselves on this question, and it developed that all but two of the Committee members would prefer to retain the clause. Chairman Martin noted that he had suggested the foregoing pro cedure (an expression of preference) because of his feeling that to different people. In his different words mean different things of this kind was not of formal votes on matters view, the taking

particularly satisfactory. This did not mean, however, that if anyone felt strongly enough his position should not be recorded. Mr. Robertson indicated that he felt an important question was involved in the retention or elimination of the clause relating to the offsetting of downward pressures on short-term interest rates. The Committee, he thought, was tending to label itself as a "bill rate only" group. The problem, as he saw it, involved whether the maintenance of the short-term rate should be regarded as a principal function of open market operations. To him, therefore, the question went beyond merely a matter of words. He would like to be recorded as voting for the directive, but as not favoring the inclusion of the clause in question. He also indicated that he would like to furnish, for inclusion in the record of this meeting, a statement of reasons in support of his position. Thereupon, upon motion duly made and seconded, the Federal Reserve Bank of New York was authorized and directed, until otherwise directed by the Committee, to execute transactions in the System Open Market Account in accordance with the following current economic policy directive: the Committee's current policy to accommodate It is moderate growth in bank credit, while aiming at money mar that would minimize capital outflows inter ket conditions nationally. This policy takes into account the continuing adverse United States balance of payments position and the

substantial increases in bank credit, money supply, and the reserve base in recent months, but at the same time recognizes the limited progress of the domestic economy, the continuing underutilization of resources, and the absence of general inflationary pressures. To implement this policy, and in view of the forth coming Treasury financing, System open market operations during the next three weeks shall be conducted with a view to maintaining about the same degree of firmness in the money market that has prevailed in recent weeks and to offsetting downward pressures on short-term interest rates, while accommodating moderate reserve expansion. Votes for this action: Messrs. Martin, Hayes, Balderston, Bryan, Deming, Ellis, Fulton, Mitchell, Robertson, and Shepardson. Votes against this action: None. Secretary's Note: Mr. Robertson sub sequently transmitted to the Secretary the following statement in amplification of his oral comments at the meeting re garding his position on the directive: Although Mr. Robertson voted to approve this directive, he expressed disapproval of the retention of the clause in the last paragraph: "and to offsetting downward pressures on short-term interest rates." He felt that the retention of this clause, well beyond the period of strongest rate pressures, suggested Committee preoccupation with the maintenance of a particular level of bill rates rather than with the promotion of a general monetary atmosphere appro priate to the objectives of the Committee. Open market operations to offset any downward pressures of market forces on bill rates were not currently justified either by international rate relationships or by domestic con siderations. In his view, the need for stable monetary conditions during the Treasury financing period over the next three weeks was adequately covered by the injunction, immediately preceding the clause in question, that the Manager should conduct operations "with the view of main taining about the same degree of firmness in the money market that has prevailed in recent weeks."

It was agreed that the next meeting of the Federal Open Market Committee would be held on Tuesday, March 5, 1963. This concluded the discussion of matters before the Open Mar ket Committee for consideration at this meeting. At the invitation of the Chairman, Mr. Deming commented as a matter of information on the grand jury indictment returned recently against a number of Minnesota banks, a bank holding company, and a association, charging certain practices in violation clearing house of the antitrust statutes. observations based on his atten Mr. Mitchell then presented dance at the Conference on Inflation and Growth held in Brazil in the early part of January. The meeting then adjourned. Secretary