July 28, 1964 FOMC Minutes

FOMC minutes

Mr. Shepardson said he favored making the type of material included in the green book publicly available. He noted that the Committee had made progress in getting its policy record entries prepared on a more current basis. This was an important improvement because it avoided the possibility of any suggestion that the entries were written with the aid of hindsight. The Committee still had not taken a further step, involving a more current release of the policy record entries--perhaps a quarterly release. He thought it would be desirable to accelerate the release of these entries. But he was skeptical about the extensive type of directive suggested in the memorandum. Mr. Daane said he considered the proposed directive unnecessarily complicated. This was particularly true of elements 1 and 2, which, he thought, did little more than add window dressing to what was now in cluded ir the policy record. Moreover, staff resources were likely to be strained in the attempt to draft these elements in advance of each meeting, and the staff could spend an undesirable amount of time in worrying about specific language. In his judgment elements 1 and 2 should not be made part of the directive. Perhaps more thought should the corresponding part of the policy record entries. be given to improving With respect to the proposal to release the green book or some version of it, his initial reaction was favorable.

On element 3, Mr. Daane said he shared Mr. Hayes' question about the desirability of specifying the Committee's longer run policy intent in terms of the seasonally adjusted annual rate of increase in required reserves. He recalled a discussion by Mr. Koch at a recent Board meeting of the operations the Committee would have called for thus far in 1964 if it had employed such a target. Perhaps there were answers to the questions raised by Mr. Koch's discussion, but he bad not seen them. He was opposed to selecting a new target of this sort without a demonstration that it would involve a net gain for monetary policy. The proposed element 4, Mr. Daane continued, would elevate free reserves to a status as an operating target even higher than that which the market believed, and some academicians had charged, that the Committee gave to it. He did not think the Committee should quantify its instructions and require the Desk to meet numerical targets, even if the instructions were tempered with qualifications. Moreover, he questioned the statement on page 7 of the memorandum that a change in the free reserve target would have"quick and significant" consequences for other policy variables. Mr. Daane doubted that the relations were such that quick and significant consequences would necessarily follow, or that the Committee knew precisely what the relations were at any between free reserves and bill rats. Thus, he would time, even as the use of free reserves it, this manner, with the full not subscribe to weight of the Committee behind them.

Mr. Daane concluded by saying that he approached the proposal with two questions in mind: Would its adoption basically improve the Committee's performance, and would it improve the Committee's pre sentations to the public? Of the two questions, the former was by far the more important, and he did not see anything in the proposal that would improve the Committee's performance in the ultimate sense. Perhaps further analysis along the lines of elements 1 and 2 was desirable, but there was no need to incorporate it in the directive. He was puzzled by the implication on page 3 of the memorandum that variations in the rate of growth of bank reserves over a period when the Committee was voting for "no change in policy" were in themselves bad. "No change in policy" seemed to him to be a meaningful and significant conclusion that the Desk could and did interpret and implement. Chairman Martin, noting the lateness of the hour, suggested that the meeting be adjourned at this point with the understanding that the discussion would be pursued at a later meeting of the Committee. Since there would be some absences at each of the next two meetings, he suggested that this subject be put down for further discussion at the tentatively scheduled for September 29, 1964. meeting knew that all of the Committee members Chairman Martin said he Ellis, Mitchell, and Swan had done in appreciated the work Messrs. that it was important for the preparing their memorandum. He believed

Committee to continue to work on the problen of the directive. In this connection, the Chairman thought it would be useful if Mr. Hayes had copies of his comments today distributed to the Committee. He also thcught the Committee might adopt Governor Robertson's suggestion that it make unofficial "trial runs" of a new type of directive, while continuing to employ its present type of directive officially. Accord ingly, he suggested that for the next several meetings the staff prepare, on the side, the kinds of materials called for in the memorandum. No objections were made to the Chairman's suggestions. Thereupon the meeting adjourned. ecretary Secretary