July 30, 1963 FOMC Minutes

FOMC minutes

since been rejected. Under certain conditions there could be movements of interest rates that would not conform at all to the free reserve level. As had been stated on many occasions, it was the tone and feel of the market that must take precedence. It would seem to him that the instruction to the Manager for the next three weeks would have to be conditioned largely on the tone and feel of the market, consistent with whatever consensus was arrived at by the Committee. Chairman Martin expressed agreement with the view that the level of free reserves was not a proper sole target, just one guide. Mr. Ellis, who was asked to restate at this juncture the targets he had suggested earlier during the meeting, indicated that they would include a bill rate in the area of 3-3/8 per cent and a Federal funds rate between 3-1/4 and 3-1/2 per cent, with a free reserve target level at $100 million, subject to some variation in either direction. His general thought had been to follow a course that would allow the market to find its own footing again. If doubts arose in the conduct of open market operations, he would resolve them on the side off firmness rather than ease. Mr. Mitchell indicated that he considered that the real issue related to what course the Account Manager would follow if the several targets became mutually inconsistent .If the Committee wanted to instruct the Manager to protect the bill rate even at the expense of net free reserves turning into net borrowed reserves, that was one

policy. If the Committee wanted to instruct the Manager to aim at some target of free reserves, say, $100-$150 million, and see how the market reacted, that would be an entirely different policy. Mr. Hayes noted that the targets expressed by Mr. Ellis included a bill rate of around 3-3/8 per cent. Actually, the bill rate had not to that level during the past three weeks. Therefore, while been close the targets embodied in Mr. Ellis' suggested policy, he he rather liked did not think such a policy could be regarded as one of no material change. as to how the policy question for the After further discussion weeks might best be expressed, Mr. Hayes commented that in next three that had taken place, he was inclined light of all of the discussion that the question be decided in to revert to an earlier suggestion included in the draft directive material terms of the alternatives that had been distributed. Upon further consideration, there was general agreement with taken on a policy directive that would a suggestion that a vote be for policy to be implemented, in the call, in the second paragraph, rate, by open market operations conducted context of a higher discount of firmness in the a slightly greater degree with a view to attaining expansion in aggregate bank while accommodating moderate money market, reserves.

Accordingly, 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 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 accountof 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 activity, as well as the increases in bank credit, and the reserve base in recent months. At money supply, time, however, it recognizes the continuing underthe same utilization of resources. this policy in the context of a higher To implement open market operations shall be discount rate, System with a view to attaining a slightly greater conducted degree of firmness in the money market, while accommodating moderate expansion in aggregate bank reserves. Votes for this action: Messrs. Hayes, Balderston, Irons, Mills, Martin, and Shepardson. Votes against this Messrs. Bopp, Mitchell, Robert-- action: son, and Scanlon. had suggested, in his oral noted that the Account Manager It was directive to the Federal the continuing authority report today, that had been amended on June 18, 1963, to Reserve Bank of New York, which $1.5 billion the limit on changes in the System raise from $1 billion to in the period between Committee meetings, might be Open Market Account again to reduce the leeway to the former-figure of $1 billion. changed

Upon motion duly made and seconded, and by unanimous vote, section 1(a) of the continuing authority directive was amended so as to authorize and direct the Federal Reserve Bank of New York, to the extent necessary to carry out the current economic policy directive: To buy or sell United States Government securities in the open market, from or to Government securities dealers and forein and international accounts maintained at the Federal Reserve Bank of New York, on a cash, regular, or deferred delivery basis, for the System Open Market Account at market prices and, for such Account, to exchange maturing United States Government securities with the Treasury or allow them to mature without replacement; provided that the aggregate amount of such securities held in such Account (including forward commitments, but not including such special short-term certificates of indebtedness as may be purchased from the Treasury under paragraph 2 hereof) shall not be increased or decreased by more than $1 billion during any period between meetings of the Committee. that the next meeting of the Federal Open Market It was agreed Committee would be held on Tuesday, August 20, 1963. The meeting then adjourned. Secretary