October 1, 1963 FOMC Minutes

FOMC minutes

Committee. Required reserves had been moving along at the top of the staff 3 per cent growth guideline, and total reserves had expanded more than 7 per cent in the past 12 months. This had contributed to a situation where foreign bankers were pointing out that "U. S. corporations have money running out of their ears." In these circumstances, it was small wonder that corporate funds were outside the domestic econcmy. It seemed possible seeking outlets that depreciation and investment credits might combine with a tax cut to accelerate cash flows to such extent that business firms might be more stimulated to make investments abroad than investments domestically. These considerations led him to concur substantially with the views on policy expressed by Mr. Irons. noted that Mr. Hickman had expressed the hope Mr. Balderston European nations might take steps to lower their interest that perhaps rates. He thought this unlikely, however; the wage explosion in the Dutch authorities great concern, and what Holland was giving done to counteract the wage push was a matter of general France had to him that one could not count on inflation in knowledge. It seemed relieving the burden on the United States. With an average Europe hourly rate of 71 cents paid by manufacturing industries in France, $2.45 in this country, even if French wage rates were as compared with that would be almost precisely the equivalent of to rise 10 per cent, could not take too much comfort that our a 3 per cent rise here. One

average hourly increase is running somewhat below our average annual gain in manufacturing productivity of 3-1/2 per cent even though the European wage advance is ahead of the productivity increase there. In absolute terms, the wage differential, as distinct from the cost differential, has not been narrowed. As to policy, Mr. Balderston said that he would subscribe to the position taken by Messrs. Irons and Ellis. Chairman Martin noted that the Commiittee was faced again with a division of opinion as to policy. However, it seemed to him that the question involved only a small matter: slightly less ease. If he were doing it on his own, he would side with the position of slightly less ease as being more consistent and more appropriate, but it was not a decision that would either make or break the economy. Since there appeared to be a substantial group that did not want to change policy at all at this time, it seemed to him that it would be wise to recogrize that fact and not overplay the thought that the situation could be altered substantially by any very modest shift of policy. Accordingly, he would suggest that a vote be taken on the basis of no change in policy at this time, with the understanding that any members of the Committee who dissented would have an opportunity to record their views in that way. The current economic policy directive to the Federal Reserve Bank of New York would not be changed except to delete "and taking account of the current Treasury refunding operation" in the first part of the second paragraph.

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, 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, Bopp, Clay, Irons, Mitchell, Robertson, and Scanlon. Vctes against this action: Messrs. Hayes, Balderston, Mills, and Shepardson. Mr. Hayes stated, in connection with his vote, that he did .ot feel that all policy shifts had to be dramatic. The decision today involved a relatively small matter, but he thought it appropriate to record a dissent on the basis that a modification of policy such as he had suggested would, in his judgment, have some significance. Upon motion duly made and seconded, and by unanimous vote, section 1(a) of the continuing authority directive was

amended, in line with the earlier suggestion of the Account Manager, to authorize the Federal Reserve Bank of New York, to the extent necessary to carry out the current economic policy directive: (a) To buy or sell United States Government securities from or to Government securities dealers in the open market, and international accounts maintained at the and foreign Bank of New York, on a cash, regular, or Federal Reserve deferred delivery basis, for the System Open Market Account at market prices and, for such Accounc, 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 $1.5 billion during any period between meetings of the Committee. At the suggestion of Chairman Martin, it was agreed that discussion of the memorandum from Messrs. Young and Sherman that had been distributed to the Committee under date of September 28, 1963, regarding the question of making minutes of the Federal Open Market Committee for some past period available in some manner for the use of scholars and others be deferred until the next meeting. It was agreed that the next meeting, of the Federal Open Maket Committee would be held on Tuesday, October 22, 1963. The meeting then adjourned. Secretary