January 7, 1964 FOMC Minutes

FOMC minutes

His present thinking, Mr. Balderston continued, was that the Committee should await the position taken by the Congress and the Administration with respect to the budget. If budget spending was curbed, that would be a significant factor. He felt, therefore, that even after mid-February the Committee might want to assess the sentiment of the country, to see whether in fact the Federal Government was curbing spending, and to determine how many countries were joining the effort to curb inflation by raising their disceunt rates. If necessary, however, the Committee should be prepared by late February to move toward some further reduction in the reserves it was pouring into the banking system. It seemed clear to him that the money supply variable to be watched was not the narrowly defined one, which rose only 3.6 per cent last year. Liquidity was abundant everywhere and was flowing into the stock market and abroad. It was clearly beyond tha control of the Committee to mop up that liquidity. If the future turned out as Mr. Balderston feared it might, he thought that forceful, vigorous, overt action by the Committee would be called for sometime after the middle of February. Chairan Martin expressed the view That the Committee did not have any real problem with respect to policy at this meeting. He thought Mr. Balderston had pointed up effectively the fact that while the Committee had some indications with respect to fiscal policy it did not yet know what budgetary policy was going to be. A change in budgetary policy might make quite a difference in its approach, and the Committee was fortunate,

in a sense, that Treasury activities preclLded it from taking any action at this moment. He had pointed out at the last meeting that by deciding not to change policy then the Committee was deciding against such action in the immediate future. At least, this wes the case if the Treasury decided to go to the market, and he thought there was every indication that it would. Parenthetically, Chairman Martin emphasized that the fact that the Treasury eras considering an advance refunding was confidential, and should be so considered by all persons in the room. After noting that the Committee members would not favor discount rate action aL this time, the Chairman said that the Committee seemed to be agreed on io change in the directive except for the addition of a reference to Treasury financing. It wa. decided after discussion that this reference should be made by inserting the phrase, "and taking into account prospective Treasury finarcing" after the phrase, "T imnplement this policy," ill the second paragraph of the directive. 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 economic policy directive:

It is the Federal Open Market Committee's current policy to acconrmodate moderate growth in bank credit, while maintain ing conditions in the money market that would contribute to centinued improvement in the capital account of the U. S. balance of payments. This policy takes into consideration the fact that domestic economic activity is expanding further, although with a margin of underutilized resources; and the fact that the balance of payments position is still adverse despite a tendency to reduced deficils. It also recognizes the increases in bank credit, money supply, and the reserve base of recent months. To implement this policy, and taking into account prospec tive Treasury financing, System open market operations shall be conducted with a view to maintaining about the same conditions in the money market as have prevailed in recent weeks, while accommcdating moderate expansion in aggregate bank reserves. Votes for this action: Messrs. Martin, Hayes, Balderston, Bopp, Clay, Daane, Mitchell, Robertson, Scanlon, Shepardson, and Shuford. Vote against this action: Mr. Mills. In dissenting, Mr. Mills commented that, in accordance with his previously stated position against a policy of "no change" and his concern that damage to the economy was implicit in the continuation of that policy, he believed that a somewiat more liberal provision of reserves would yield beneficial economic returns, and without complicating the Treaury's financing prograra. 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 sug gestion of the Account Manager, to authorize the Federal Reserve Bank of York, to the extent necessary to New carry out the current economic policy directive: (a) To hby or sell United States Government securities in the open market, from or to Government securities dealers

and foreign and internationaL accounts maintained at the Federal Reserve Bank of New York, on a cash, regular, or deferred delivery basis, for the Systemn Open Market Account at market prices and, for such Account, to exchange maturing United Scates Government securities wi:h the Treasury or allow them to mature without replaceme-t; 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 $1.5 bi.llion during any period between meetings of the Committee. It was agreed that the next meeting of the Committee would be held on January 28, 1964. Thereupon the meeting adjourned. Secr$ry *