July 9, 1963 FOMC Minutes

FOMC minutes

suggested that if no discount rate action was Mr. Hickman forthcoming, market expectations probably would change in due course. To maintain the present level of bill rates, it might then be necessary toward zero on free reserves. If there was a change in the to move discount rate, expectational factors would tend to keep the bill rate up. Chairman Martin proposed that the next Committee meeting would be a more appropriate time for the Committee to make determinations concerning the level of reserves. It was not known at present whether on the discount rate in the next three anything was going to be done weeks. Mr.. Mills asked whether the question did not come down of the market. To maintain the present essentially to the tone and feel degree of market firmness might require enough withdrawal of reserves to reduce the level of free reserves, but this would not be known until could be appraised. In a further comment, Mr. Mills market developments were to be raised to 3-1/2 per cent, it noted that if the discount rate contraction of reserves to would not necessarily require an immediate effective. However, he thought that would follow shortly. make the rate of a discount rate change, the market would expect Upon being apprised the new rate to be made effective promptly. Mr. Hayes c mented that he had been thinking of the problem om would face if he should have a 3-1/2 per cent the Account Manager

discount rate to contend with, and he continued to have in mind the question whether some appropriate instruction related to this possible rate change should not be included in the policy directive. Chairman Martin repeated that this had not been done heretofore. It seemed to him that it would be necessary to write the directive on the basis of what the Account Manager should do if there was a discount rate change and what he should do if there was not a discount rate change. Mr. Balderston suggested that the System should not seem to the public to be backing and filling at this point. He recalled that during the go-around today a number of Committee members had advanced the view that there should be as much consistency as possible in System policy. Mr. Mitchell again inquired whether the Committee might not instruct the Manager to maintain the same level of free reserves and see what the market did. Mr. Hayes commented, however, that the level of free reserves had never been a very good target. It had not been used as a single specific target. At times of float bulge, for example, it was a poor guide. Mr. Robertson noted that he sensed that the discussion revolved largely around the question of the bill rate continuing in the general area in which it stood at present. If so, he felt that a sufficient instruction could be conveyed by words that had been suggested for the directive somewhat earlier in the discussion, namely, that open market operations should be conducted with a view to

continuing the present degree of firmness in the money market; Mr. Hayes indicated that he would be satisfied with such wording. It was then suggested that a vote be taken on a directive the second paragraph of which would be phrased in such manner; The first. paragraph would incorporate a technical change from the existing directive so as to refer to the high level of domestic business activity rather than an improved domestic business outlook. Thereupon, upon motion duly made and seconded, the Federal REserve Bank of New York was authorized and directed, until otherwise directed by the Com mittee, to execute transactions in the System Account in accordance with the following current economic policy directive: 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. balance of payments. This policy takes into consideration the continuing adverse balance of payments position and its cumulative effects and the high level of domestic business as well as the increases in bank credit, money activity, supply, and the reserve base in recent months. At the same time, however, it recognizes the continuing underutilization of resources. To implement this policy, System open market operations shall be conducted with a view to continuing the present. of firmness in the money market.. degree Votes for this action: Messrs. Martin, Hayes, Balderston, Bopp, Clay, Irons, King, Mills, Scanlon, and Shepardson. Votes against this action; Messrs. Mitchell and Robertson.

It was agreed unanimously that no change should be made at this meeting in the continuing authority directive, which, in the form approved at the meeting on June 18, 1963, allowed a latitude of $1.5 billion on changes in the Open Market Account in the period between meetings of the Open Market Committee. It was agreed that the next meeting of the Federal Open Market Committee would be held on Tuesday, July 30, 1963. The meeting then adjourned. Assistant Secretary