September 10, 1963 FOMC Minutes

FOMC minutes

expansion might appropriately be more moderate than last fall, it should be adequate enough to support a continuation of the business improvement that had been experienced so far this year. He would not favor any change in the discount rate at this time, and he saw no reason to change the policy directive. Mr. Balderston said that certain of his own concerns had been set forth by Mr. Hickman and that he would also like to mention two others. One was the continuing tendency to put savings and other resources into mortgages, especially for the construction of incomeproducing property. Of the total outstanding mortgage debt of $263 billion, which had been rising at a monthly rate of about $2 billion, the debt on one-to-four family houses was now about $175 billion. One indication of a lowering of lending standards that had attracted the attention of Mr. Fisher of the Board's research staff was that in July one-fourth of the conventional mortgages on new single-family dwellings were for terms of 25 years or more. Mr. Balderston went on to say that his other concern was over the rail. strike issue. The country may have felt some sense of relief in the postponement of the strike. However, the postponement was accomplished only at the expense of interference with the process of collective bargaining, which might lead eventually to interference in price setting and other matters. In his view, there were worse things than a strike, and the strike now remained for settlement during the winter when any interference with the movement of coal was so important.

The central issue was how many jobs the union was willing to give up as the result of automation, and thus far no criteria for the settlement of that issue had been provided. Thus, Mr. Balderston said, the exuberance of the moment must be tempered by thoughts of a deterioration in the quality of lending and by what might prove to have been a misstep in the settlement of a labor dispute. As to policy for the forthcoming period, Mr. Balderston said he agreed with what had been said by others at this meeting. He felt the policy of the previous period should be continued for the next three weeks, but he hoped that events might permit pressing the bill rate somewhat closer to the discount rate. Martin said he continued of the view that both the Chairman domestic business situation and the balance of payments situation had been improved by the actions of the System this summer, which up some of the slack in the line. Reports of an had tended to take of mortgage money in some areas, as mentioned by Mr. overabundance Irons, gave pause for concern. The Chairman went on to say he had always been of the feeling it was inadvisable to provide for a change that, generally speaking, of a three-week period between Committee of policy within the course at meetings of the Committee and meetings. Policy should be made a future time period. It seemed to him that not be projected into be well to wait until the October 1 in the present situation it would

meeting, when the Treasury would have completed a major financing operation, to decide on any change in policy that might seem to be neeeded. suggested that the policy directive might be Chairman Martin reference to the Treasury refunding operation because changed to make of its size, although such recognition might not be necessary on all occasions of Treasury financing. This could be done, if the Committee so desired, simply by inserting the words "and taking account of the current Treasury refunding operation" in the first part of the second paragraph. He proposed that a vote be taken on the directive in a form in which it would otherwise be unchanged, with the understanding that this would infer the maintenance of policy "as is" for the forthcoming three-week period. 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 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 activity, 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 underutilization of resources.

To implement this policy, and taking account of the current Treasury refunding operation, System open market operations shall be conducted with a view to maintaining the prevailing degree of firmness in the money market, while accommodating moderate expansion in aggregate bank reserves. Votes for this action: Messrs. Martin, Hayes, Balderston, Clay, Irons, King, Mitchell, Robertson, Scanlon, Shepardson, and Wayne. Votes against this action: none. agreed that the next meeting of the Open Market Committee It was would be held on Tuesday, October 1, 1963. The meeting then adjourned. Secretary