June 17, 1964 FOMC Minutes

FOMC minutes

and in his judgment the developments of the last three weeks were toward tightening undesirably. Therefore, it was impossible for him to vote for a policy of no change. In voting favorably, Mr. Robertson said he hoped that doubts would be resolved on the side of ease; Mr. Mitchell commented that he assumed the Desk had been trying to do what the Committee wanted even though he personally was unhappy with the results; and Mr. Hickman expressed satisfaction with the recent operations of the Desk. Chairman Martin commented that it should be clear that no one was impugning the Manager's integrity in this matter, but that the members were applying their individual judgments on a subject that was a matter of judgment. Turning to the directive, the Chairman said he thought the draft that the staff had prepared was good. He noted that a number of language changes had been proposed, including a suggestion that the phrase "less favorable" rather than the word "deterioration" be used in describing the recent performance of the balance of payments. This involved a slight change in emphasis, bit the choice was largely a matter of taste. He, too, would be inclined to make some minor changes if he were writing the directive himself. On the other hand, he thought the text as drafted was satisfactory for its purpose, which was to reflect the Committee's general thinking. As he had said before, words meant different things to different people and they often involved concepts that could not be defined narrowly. It was not likely that a directive could be written that would please everyone.

Chairman Martin then proposed that the Committee vote on adoption of the directive as drafted by the staff, except for the modification he had mentioned in the reference to the balance of payments. 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 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. This policy takes into account the recent data on production, actual and planned business capital outlays, retail sales, and unemployment, which indicate some quickening in the pace of domestic expansion. It also gives consideration to the continued relative stability in average commodity prices; the continued underutilization of manpower and other resources; the country's less favorable international payments position thus far in the second quarter; and the interest rate advances over past months in important markets ab::oad. To implement this policy, and taking into account probable Treasury financing activity, 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. Votes for this action: Messrs. Martin, Hayes, Hickman, Mitchell, Robertson, Shepardson, Shuford, Swan, and Wayne. Vote against this action: Mr. Mills. At this point Chairman Martin called for distribution of a memorandum on the Committee's current economic directive that had been

prepared by Messrs. Ellis, Mitchell, and Swan in accordance with a request made by the Committee at its meeting on May 5. (Note: A copy of this memorandum, which was dated June 16, 1964, has been placed in the files of the Committee.) The Chairman then invited Mr. Mitchell to comment. Mr. Mitchell said he thought all of those who had worked on the report had experienced a sense of satisfaction that he hoped the others would share as they read it. It had been a rewarding experience. While the directive problem was a difficult one, it was not intractable; something could be done about it, and he hoped the report represented progress. As the Committee would note, Mr. Mitchell continued, the recom mendations mad were quite specific. The authors did not mean to be dogmatic. They did not feel that the course they recommended was the only possible one, or that it necessarily was the best one; it was simply the best: at which they could arrive. Their objects were to give the Committee some specific proposals to which it could react, and to help create a climate in which desirable changes could evolve. Finally, Mr. Mitchell said, he wanted to note that the Board's staff had worked hard in assisting in the report's preparation. The final document was only about 12 pages long, apart from illustrative material, and he believed the Committee would be interested in reading it.

Chairman Martin said the Committee was indebted to Messrs. Ellis, Mitchell, and Swan, and to the staff, for their work on this report. It was agreed that the report would be discussed by the Committee at the meeting to be held on July 28. It was agreed that the next meeting of the Committee would be held on Tuesday, July 7, 1964, at 9:30 a.m. Thereupon the meeting adjourned. Assistant Secretary