March 3, 1964 FOMC Minutes

FOMC minutes

3/3/64 -93- ATTACHMET A March 2, 1964. Draft current economic poLicy directives suggested for consideration by the Federal Open Market Committee at its meeting on March 3, The Committee's current economic policy directive adopted at the last meeting reads as follows: It is the Federal Open Market Committee's current policy to accommodate moderate growth in bank credit, while maintaining conditions in the money market that would contribute to continued 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 deficits. It also recognizes the increases in bank credit, money supply, and the reserve base of recent months. To implement this policy, 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 accommodating moderate expansion in aggregate bank reserves. In view of the tax cut enactment, the rise in the British benk rate, and the recent reversal of trend in aggregate bank reserves, this directive would appear to need revision,, particularly as regards the first paragraph. Several alternative revisions, all consistent with no change in policy, are suggested below: Alternative A: The Federal Open Market Committee notes that domestic economic activity continues to expand at a moderate pace with a margin of unutilized resources, but is likely to

receive additional strong stimulus over coming months from the recently enacted reduction in Federal income tax rates. The Committee also notes that aggregate bank reserves have not expanded since the turn of the year. It further notes that the U. S. balance of international payments, while still adverse, continues to reflect the improvement that occurred in the second half of 1963, and that the effects on the capital account of the payments balance of recent increases in money rates: ir important European markets are as yet uncertain. In the light of these developments, it is the Committee's current policy to facilitate further expansion in domestic activity and to contribute to a more sustainable position in the capital account of U. S. international payments. For the next three weeks, System open market operations shall be conducted with a view to continuing about the same degree of firmness in the money market as has prevailed on average during recent weeks, without action to offset small changes that reflect market adaptations to forces judged to be tem porary. The Committee expects that operations so conducted will be consistent with resumption of an upward trend in aggregate bank reserves.

Alternative B: It is the Federal Open Market Committee's current policy to accommodate moderate growth in the reserve base, bank credit and the money supply in order to facilitate the financing of further expansion of domestic economic activity, while maintaining conditions in the money market that would help attain a better position for the capital account of U. S. international payments. This policy takes into consideration the continuing expansion of domestic activity, which is expected to receive additional strong stimulus from the recently enacted tax reduction; the lack of growth in aggregate bank reserves since the turn of the year; the country's improved, though still adverse, inter national payments position; and the recent rise in money rates in important European markets. To implement this policy, System open market operations shall be conducted with a view to continuing for the next three weeks about the same degree of firmness in the money market as has prevailed on average during recent weeks, without action to offset small changes that reflect market adaptations to forces judged to be temporary. The Committee expects that operations so conducted will be consistent with resumption of an upward trend in aggregate bank reserves.

Alternative C: Alternative A with second paragraph of present directive used in place of last two sentences. Alternative D: First paragraph from Alternative B, with the second paragraph from present directive.