May 26, 1964 FOMC Minutes

FOMC minutes

from the feeling that it would be better if the Committee were watching more as a neutral, from the sidelines, rather than as a participant. Unfortunately from his viewpoint, it was clear that a move to neutrality now would be viewed as an aggressive move. Such aggression did not seem appropriate to the Federal Reserve, especially in view of the market's reaction to the Chairman's recent statement before the Advertising Counc.l. Mr. Ellis therefore fell back on Mr. Iron's suggestion of three weeks ago that the Committee instruct the Manager to resolve doubts on the side of less ease while maintaining a posture of watchful waiting. Mr. Ellis said that he had found the discussion about the direc tive this morring highly interesting. It was a useful illustration of need for the Committee to give more attention to its the continuing for judgments that now were and to assume more responsibility directive view was that the Manager had the Account Manager. His personal left to He noted that Mr. Stone hac doing very well in implementing policy. been cf a zero to $200 million reserve target in terms described the free to $150 million, but he the target range was $50 range. He had thought of a range from zero upward. to accept the Manager's version was delighted the bill rate from 3.44 to he would suggest fluctuation in Along with that over the last six months. cent, the range that had prevailed 3.60 per Mr. Ellis said that the to Mr. Bryan's comments, Referring of giving the market be caught between the alternative Committee seemed to free reserve figure, or jar with a negative an occasional psychological

avoiding this and setting up the chance to really jolt the market when it wanted to change policy. He would prefer the occasional jar, and have the market come to recognize that a single low free reserve figure should not be taken as signifying a change in policy. The Committee could then move in gradual steps rather than in jolts. In concluding, Mr. Ellis said he thought the directive shculd reflect recent developments. Accordingly, he favored the draft proposed by the staff with the substitution proposed by Mr. Mitchell of "apparent" for "recent." Mr. Balderston commented that he also would like to express his appreciation for the new form of the chart presentation given to the Committee this morning. He was especially nappy about the strength and balance of the economy in May, as recorded in the presentation. He was not suggesting that May would prove to have been the high point of the expansion, but he thought it might be a point to which the Committee would look back in the future as reflecting the kinds of economic conditions that it desired and that it had hoped for before the tax reduction. Mr. Balderston said that the consensus of the Committee clearly favored a continuation of the policy of recent weeks. Parenthetically, he noted that he was among those who had been pleased with the implementation of policy since the last meeting. After a discussion of the specific language of the directive to be adopted, Mr. Balderston suggested that a vote be taken on the staff

draft with the substitution of the word "apparent" for the word "recent" before "quickening." Messrs. Daane, Hickman, and Mills each indicated that he had certain reservations about the proposed directive but did not consider them sufficiently serious to warrant dissenting. Thereupon, upon notion duly made and seconded, and by unanimous vote, 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 Federal Open Market Committee's current policy to accommodate moderate growth in the reserve base, bank credit, and the money supply for the purpose of facilitating continued expansion of the economy, while fostering improve ment in the capital account of U. S. international payments, and seeking to avoid the emergence of inflationary pressures. With the recent Federal income tax reduction, continued strength reported in consumer buying plans, and anticipated increases in business capital expenditures as immediate background, this policy takes into account the indications in most recent data on production, business orders, and employment of some apparent quickening in the pace of domestic expansion. It also gives con.ideration to the con tinued relative stability in average commodity prices; the persistent underutilization of manpower and other resources; the country's improved, though still adverse, international payments position this year; and the interest rate advances over past months in important markets abroad. 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.

It was agreed that the next meeting of the Committee would be held on Wednesday, June 17, 1964, at 9:30 a.m. Thereupon the meeting adjourned. Secretary