May 7, 1963 FOMC Minutes

FOMC minutes

feasible unless monetary policy had been trending for some time in a particular direction. Chairman Martin then said that on the basis of today's discus sion it appeared that the period following the conclusion of the current Treasury activity in the market would be as good a time as any to move toward slightly less easy monetary conditions. Here he was talking just about pulling a little on a rope that was already very loose. He was not talking about anything very dramatic. It might be, of course, that the Committee would decide later that this was not the direction in which it should have moved, and it might want to pull back. waited too long, however, it might have to deal with If the Committee an active problem of inflationary pressures. In his opinion, there was already a good bit of pressure in some areas that could build up rapidly. If one waited until after the resulting price movements actually occurred, he might wonder why he had not done something about It would be too late at that juncture. Far from stimulating it before. such inflationary pressures might well undermine the exist the economy, level of activity and lead to a decline in employment. ing Personally, the Chairman continued, he would like to see the direction of slightly less ease, beginning about Committee move in the May 15. It was difficult for him to believe that experimentation in such direction could affect the economy adversely unless the current improvement that had been discussed at this meeting was so fragile that

it could not continue in any event. If this was the case, he doubted whether monetary policy could turn the tide. Chairman Martin then proposed placing before the Committee as a basis for decision a current economic policy directive that would call for operations with a view to achieving slightly less easy monetary conditions following the conclusion of the current Treasury refinancing. There followed certain suggestions as to how such a directive might appropriately be worded, and it was noted that a draft of direc tive had been prepared by the staff for the Committee's consideration event the discussion at this meeting suggested the possibility in the of a decision to move in the direction of slightly less ease. The draft directive was read to the Committee and copies were distributed, following which certain minor modifications of the language were suggested. It was pointed out, in this connection, that the draft directive was phrased in terms of achieving a slightly greater degree of firmness in the money market than had prevailed in recent weeks, and question was raised whether it might not be preferable to refer to a slightly lesser degree of ease since current monetary policy was characterized by a condition of ease. The discussion of this question brought out, however, that the policy directives issued at recent meetings had referred to a degree of firmness, as related to the money market, which suggested that in the interest of consistency and for comparative

purposes there was something to be said for continuing the same terms of reference. It was the consensus that the theory of consistency recommended itself. Chairman Martin then suggested that a vote be taken on the proposed policy directive, in form reflecting the minor modifications that had been mentioned. 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 direc tive: It is the Committee's current policy to accommodate moderate growth in bank credit, while putting increased emphasis on money market conditions that would contribute to an improvement in the capital account of the U.S. bal ance of payments. This policy takes into consideration the continuing adverse balance of payments position and its cumulative effects and the improved domestic business outlook, as well as the increases in bank credit, money supply, and the reserve base in recent months. At the same time, however, it recognizes the continuing under utilization of resources. To implement this policy, System open market operations following the conclusion of the Treasury refunding operation shall be conducted with a view to achieving a slightly greater degree of firmness in the money market than has prevailed in recent weeks, while accommodating moderate reserve expansion. Votes for this action: Messrs. Martin, Hayes, Balderston, Irons, King, and Shepardson. Votes against this action: Messrs. Bopp, Clay, Mitchell, Robertson, and Scanlon. It was agreed that the next meeting of the Open Market Committee

would be held on Tuesday, May 28, 1963. Mr. Hayes noted, as a matter of information, that plans were under way, at the request of the Chairman of the House Banking and Currency Committee, for a visit to the Federal Reserve Bank of New York by the members of the Committee in the latter part of June. The visit was to include, among other things, an explanation of the type of operations conducted by the Trading Desk. The meeting then adjourned. Secretary