February 2, 1965 FOMC Minutes

FOMC minutes

borrowings might average about $100 million above the levels at which they had been running. The level of free reserves that would be compatible with those conditions would vary widely, depending on the distribution of reserves and the intensity with which they were utilized. Free reserves might come out at zero in one week, minus $25 million in the next, and perhaps plus $45 or $50 million in the week following. Mr. Shuford said that these guidelines were quite acceptable to him, and Mr. Hickman also expressed agreement with them. Chairman Martin then proposed that the Committee vote on a directive consisting essentially of Mr. Shepardson's first paragraph and of the second paragraph of the staff's alternative B, with Mr. Daane's amendments. Thereupon, upon motion duly made and seconded, and with Messrs. Mitchell and Robertson dissenting, 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: In light of the economic and financial developments reviewed at this meeting, including the generally strong and continuing expansion of the domestic economy and the continuing adverse position of our international balance of payments, it remains the Federal Open Market Committee's current policy to accommodate growth in the reserve base, bank credit, and the money supply but at a more moderate in recent months. This policy seeks to avoid pace than the emergence of inflationary pressures and to support may be taken to strengthen the inter other measures that national position of the dollar.

To implement this policy, while taking into account Treasury financing, System Open Market operations over the next four weeks shall be conducted with a view to moving toward slightly firmer conditions in the money market than have prevailed in recent weeks. Mr. Mitchell said that he had voted against this action because he thought the directive called for more than an imperceptible change in policy and he found it difficult to believe that a perceptible change would really aid the balance of payments situation or the domestic economy. Mr. Shuford, who had voted affirmatively, said he was not certain that this was the proper moment to change policy. However, he would go along with the majority judgment on the question of timing. Mr. Swan concurred in this statement. Chairman Martin suggested, for reasons that he mentioned, postponing the discussion of the general subject of specifying quantities in the Committee's directives that tentatively had been scheduled to follow today's meeting, and no objections were made to this suggestion. The Chairman then noted that barring unforeseen circumstances today's meeting of the Open Market Committee was the last that Mr. Mills would attend. He knew that all of the members had considered it a privilege to work with Mr. Mills and everyone would miss him. It was agreed the next meeting of the Committee would be on Tuesday, March 2, 1965, at 9:30 a.m. Thereupon the meeting adjourned. Secretary

Attechment A CONFIDENTIAL (FR) February 1, 1965 Draft Current Economic Policy Directives for Consideration by the Federal Open Market Committee at its Meeting on February 2, 1965. Alternative A (No change in policy) In light of the economic and financial developments reviewed at this meeting, and taking Treasury financing operations into account, it remains the Federal Open Market Committee's current policy to facil itate continued expansion of the economy by accommodating moderate growth in the reserve base, bank credit, and the money supply, while seeking to avoid the emergence of inflationary pressures and to strengthen the international position of the dollar. To implement this policy, System open market operations over the next four weeks shall be conducted with a view to maintaining about the same conditions in the money market as have prevailed in recent weeks. Alternative B (some firming of policy) In light of the economic and financial developments reviewed at this meeting, it is the Federal Open Market Committee's current policy to strengthen the international position of the dollar by accommodating growth in the reserve base, bank credit, and the money supply at a than in recent months. The Committee also seeks somewhat slower pace expansion of the economy and to avoid the to facilitate continued emergence of inflationary pressures.

To implement this policy, System open market operations over the next four weeks shall be conducted with a view to moving toward slightly firmer conditions in the money market than have prevailed in recent weeks, while moderating the impact of these conditions in markets for intermediate- and long-term securities.