July 7, 1964 FOMC Minutes

FOMC minutes

District manufacturing employment rose slightly in May to reach the best seasonally adjusted total since August 1963. However, with the trends varying by industry, the twelve-month net change was only slightly improved. Nonmanufacturing employment also bettered the sea sonally anticipated rise. The preliminary manufacturing production index for May showed a slight improvement for the month. Shoe production continued to reflect a downward trend compared with a year ago. Mr. Lacham said construction contracts, which had been a strong factor in the otherwise staid upward trend in New England, slipped below 1963 pace with a decrease in nonresidential building. Residential the building contirued to show on the plus side, particularly in the apartment which apparently reflected a delayed trend compared building category, sections of the country. Department store sales were strong with other ended June 27, they averaged 5 per cent in May, and during the four weeks of 6 per cent for the year to date. ago with a cumulative gain above a year savings banks continued to show an Deposit balances at mutual strong credit demand had been in growth rate of 8.6 per cent. A annual continued at a rapid rate, and loan-deposit evidence, business loan growth Liquidity had been maintained nevertthless ratios were on a rising trend. in long-term Government holdings. by a reduction for deposits was keen. Mr. Latham commented that competition order of the day. One large deposits seemed to be the Special savings account limited to amounts bank had instituted a special savings commercial

over $10,000. Interest was paid on a daily basis and was subject to change upon ten days' notice. Currently, the rate was 3-1/2 per cent or was tied to the discount rate. Savings banks vying for funds had re sorted to various types of enticing accounts. For example, a savings bank in New Hampshire offered regular savings accounts at 4-1/2 per cent, investment savings accounts at 4-1/2 per cent, and a bonus savings account at 5 per cent. Mr. Latham noted that mortgage money was in ample supply. Mr. Balderston observed that he was impressed by two observations that Mr. Brill had made. First, the construction boom apparently was flattening out. Second, within the advance occurring in the private sector of the economy a rolling readjustment seemed to be under way. In Mr. Balderston's opinion these developments should not occasion alarm; on the contrary, they increased the assurance that the economy would continue in a healthy state for a while. The Treasury financing clearly indicated no change in policy today, Mr. Balderston said. He would accept the draft directive submitted by the staff. Chairman Martin commented that everyone seemed to agree that the Treasury financing was the primary consideraion today, and that no change in policy. The members also seemed to agree that the should be made by the staff was acceptable with the economic policy directive prepared The Chairman proposed that a vote modification suggested by Mr. Daane. be taken on such a directive.

Thereupon, upon motion 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 follow ing 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 improvement in the capital account of U. S. international payments, and seeking to avoid the emergence of inflationary pressures. This policy takes into account the continued orderly expansion in economic activity, accompanied recently by a more rapid expansion in money supply and some decline in interest rates. It also gives consideration to the relative stability in average commodity prices; the underutilization of manpower and other resources; the country's less favorable internatioral payments position second quarter; and the further interest rate advances in the in important markets abroad. this policy, and taking into account probable To implement System oper market operations shall Treasury financing activity, be conducted with a view to maintaining about the same condi in the money market as have prevailed in recent weeks, tions moderate expansion in aggregate bank reserves. while accommodating then noted that Messrs. Daane, Balderston, and Chairman Martin from Europe. At the Chairman's invitation, Young recently had returned brought the Committee up to date or procedural and substantive Mr. Daane of Ten Deputies' discussions concerning arrangements aspects of the Group to meet future international liquidity needs. had been struck by the construction Balderston commented that he Mr. difficulties in countries, and the resulting boom in many European scarcity of labor. He had and Austria; and by the widespread Switzerland

been particularly suprised by the economic progress being made in Finland, although a considerable degree of inflation had occurred there. Bankers in Germany and Austria had expressed the hope that the United States would not let its costs get out of hand. Such a development, they thought, would lead to difficulties both for the U. S. and for them. In Scandinavia he had heard a considerable amount of talk about the need to restore the balance there between equity and debt, and about the possibility of shift ing to a value-added basis for taxes. Mr. Young remarked that for part of his trip he had been on vacation in Portugal and southern Italy, and had been pleased to note the progress those countries were making. He also reported briefly on meetings he had attended in Paris of Working Party 3 and of the Economic Policy Committee of the Organization for Economic Cooperation and Development. It was agreed that the next meeting of the Committee would be held on Tuesday, July 28, 1964, at 9:30 a.m. Thereupon the meeting adjourned. Secretary