April 16, 1963 FOMC Minutes

FOMC minutes

securities had changed hands, and that operation had not yet been fully digested. Additionally, there were the difficulties encountered in the long-term bond auction and the fact that an uncertain market atmosphere existed, reflecting conditions that had been discussed around the table today. The Committee should not do anything, in his opinion, to upset market forces in either direction. Although he was sympathetic to the points raised by Mr. Treiber from the standpoint of the balance of pay ments situation, it would be disturbing to the money market for the System to interfere in any way at the present time. Instead, the Committee should be concentrating on maintaining the same degree of ease. To use Mr. Koch's expression, "steady in the boat" ought to be the policy for the next three weeks, at which time another look could be taken at the situation. In this connection, the Chairman cautioned against committing one's self to a policy position at some time in the future. A lot of things could change in the interim. The Chairman foresaw difficulties for the Treasury in the present situation. Although the Treasury had not tasked with him about the matter, it was almost certain to have a difficult period ahead, with a refunding coming up so shortly after the long-term bond auction. In his view the System should not complicate the situation in either direction. in the boat was the policy that ought to be pursued. Steady

Continuing, Chairman Martin expressed agreement with those who felt that the balance of payments picture looked more cloudy. He did not pretend to know how long it might take for a storm to develop. Nevertheless, vigorous domestic business activity could create further difficulties from the standpoint of the balance of payments and intensify the problem. One should not overemphasize what monetary policy could do in that regard, nor should one underestimate. Chairman Martin then proposed that the current economic policy directive be renewed in its present form, adding that he doubted whether it was necessary even to make technical changes. This would imply no change in current policy and no change in the discount rate. He in quired whether there were those who would want to be recorded as dis senting. Mr. Mills stated that he wished to be recorded as dissenting, in line with the views he had expressed earlier during the meeting. Mr. Treiber also indicated that he would like to be recorded as dissenting. In explanation of his position, he said that the degree of liquidity now existing in the economy and the improvement in the domestic economic situation made it possible, in his opinion, to give greater attention to the balance of payments problem, which he considered a very serious one. He recognized that probing toward less ease in a period of Treasury financing presented a delicate problem, and there might be

developments in the market of such nature that the probing could not take place. However, from the point of view of policy formulation, he felt the Committee should be moving in that direction. Chairman Martin commented that if he were the Account Manager, he would not want to be given that degree of discretion in view of the prob lems being faced at this juncture. This, of course, was a matter of judgment. 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 for the System Open Market Account in accordance with the following current economic policy directive: It is the Committee's current policy to accommodate mod erate growth in bank credit, while aiming at money market conditions that would minimize capital outflows internationall,. policy takes into account the continuing adverse United This of payments position and the increases in bank States balance the reserve base in recent months, but credit, money supply, and at the same time recognizes the limited progress of the domestc economy, the continuing underutilization of resources, and the absence of general inflationary pressures. To implement this policy in a period of a Treasury bond open market operations during the next three financing, System to maintaining about the shall be conducted with a view weeks in the money market that has prevailed same degree of firmness weeks, while accommodating moderate reserve expansion. in recent Votes for this action: Messrs. Martin, Balderston, Bopp, Clay, Irons, King, Mitchell, Scanlon, and Shepardson. Votes Robertson, against this action: Messrs. Mills and Treiber.

It was agreed that the next meeting of the Federal Open Market Committee would be held on Tuesday, May 7, 1963. The meeting then adjourned. Secretary