March 5, 1963 FOMC Minutes

FOMC minutes

Mr. Bopp stated that he would go along with such a directive if, in the light of the question raised earlier by Mr. Swan, the Account Manager felt that it would be reasonable to call for operations with a view to maintaining about the same degree of firmness in the money mar ket and at the same time to offsetting downward pressures on short-term interest rates. Mr. Stone indicated that he felt it should be possible to operate satisfactorily under such a directive. upon motion duly made Thereupon, 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 fol lowing current economic policy directive: Committee's current policy to accommodate It is the moderate growth in bank credit, while aiming at money market that would minimize capital outflows internation conditions This policy takes into account the continuing adverse ally. United States balance of payments position and the increases money supply and the reserve base in recent in bank credit, months, but at the same time recognizes the limited progress the continuing underutilization of of the domestic economy, and the absence of general inflationary pressures. resources, this policy in a period following a major To implement Treasury financing, System open market operations during the three weeks shall be conducted with a view to maintaining next firmness in the money market that has about the same degree of in recent weeks and to offsetting downward pressures prevailed interest rates, while accommodating moderate on short-term reserve expansion. Votes for this action: Messrs. Martin, Hayes, Balderston, Bopp, Clay, Irons, Mills, Mitchell, Robertson, and Stepardson. Votes against Scanlon, this action: None.

Chairman Martin noted that the Committee staff had prepared a draft of possible current economic policy directive in the thought that it might form a basis for discussion at this meeting. He would ask the Secretary to distribute copies of the draft directive to the Committee members for their information and review, since it was apparent that the Committee must continue to work on the problem of formulating its directives in the most effective manner. In distributing copies of the draft directive, Mr. Young com mented that whenever there were suggestions for changes in the directive, it might be helpful if the proposed changes were sent to the Secretary in advance of the Committee meeting so that copies of draft directives incorporating such changes could be prepared for distribution to the Committee. Secretary's Note: In advance of this meeting there had been distri buted to the Committee by the Secretary a background statement of current economic position, with the understanding that the statement would be included in the minutes of this meeting. The statement read as follows: The domestic economic picture reflected several special influences, such as unusually severe winter weather and strikes in some key industries, which added to the low visibility of the statistical readings on the performance of the economy. Most changes in recent weeks, both favorable and unfavorable, have been quite small. Automobile production and sales remained very high again in February. Retail sales other than automobiles, however, apparently were slightly below their late 1962 record levels in

January and February. Personal income increased in January owing to large veterans payments which more than offset a sizable increase in employee contributions to social insur ance and a decline in dividend payments from the unusually high December rate. Aside from these changes, personal in come was about the same as in December 1962. The labor market again showed little change, altnough the seasonally adjusted rate of unemployment edged up in January and again in February. New orders received by durable goods producers rose appreciably in January to a level slightly above the October 1962 high. Inventory holdings in manufacturing showed no change in January and were only slightly above mid-June 1962. The industrial production index in January was fractionally lower but stayed in the 119 to 120 range it had been in since July 1962. prices in January rose ;ery slightly, return Consumer 1962 level; they were 1.4 per cent above ing to their November a year earlier with food and services mainly responsible. commodity prices continued to show little change Wholesale from the preceding month or from a year earlier. bonds showed little change in recent Yields on corporate bonds they increased moderately in weeks, while on municipal response to continuing heavy dealer inventories. Yields on Treasury intermediate- and long-term issues also rose somewhat, activities. Treasury bill rates reflecting Treasury refunding dropped slightly below mid-February levels. Yields on mort a little. Stock market prices declined appre gages declined ciably during the past two weeks after rising vigorously for more than three months. Capital market financing by corporations and State and local governments was in moderate volume again in February to continue moderate in March, especially in and is expected the corporate area. substantially further in February on a Bank credit rose seasonally adjusted basis, reflecting chiefly increases in smaller than usual decline in hold financial loans and a much securities. The seasonally adjusted ings of U. S. Government apparently was maintained at the money supply in February of January, while time and savings deposits daily average level further. Total reserves and required increased substantially deposits declined about seasonally over reserves behind private reserves averaged somewhat lower the past four weeks. Free member bank borrowings higher. and

According to tentative preliminary estimates, the payments deficit was much lower in February than in January. But in view of the influence of the dock strike on trade figures, the average for the past two or three months is more significant than the individual monthly data, and this average shows only a very modest improvement over 1962. The monthly decline in U. S. gold reserves in both January and February was slightly larger than the 1962 average. Exchange markets were generally quiet since the February 12 meeting of the Committee. next meeting of the Federal Open Market It was agreed that the would be held on Tuesday, March 26, 1963. Committee Secretary The meeting then adjourned.