April 13, 1965 FOMC Minutes

FOMC minutes

unchanged on balance. In view of the changes in Regulation Q and other factors, this short-run situation had probably been appropriate. The spurt in time deposits, utilizing the reserves furnished, was apparently temporary. From February to March, time deposit growth returned to the rate of last year, and the money supply rose. With respect to policy, Mr. Shuford felt that the economic situation called for continuation of some restraining influence. He favored maintaining the tighter money marke: conditions that now existed, with the bill rate around 3.90-4.05 per cent and Federal funds in the 4 to 4-1/8 per cent range. This would necessitate net borrowed reserves, of course, and he favored whatever magnitude was necessary in order to reach the other objectives. He hoped that over a period six months, there would be a money supply growth of time, say four to averaging around a 2 per cent rate. He would leave the discount rate unchanged at this time. to the directive, Mr. Shuford said there were With respect he could agree. The majority seemed several alternatives with which of the current directive and essentially to favor the first paragraph paragraph of the draft directive, and he would accept such the second a solution. favored use of the first paragraph of the existing Mr. Balderston the staff draft. He was concerned, and the second paragraph of directive credit in the first quarter, that in view of the increase in bank

holding an even-keel during the next four weeks not mean retrogression. In other words, he would not want the Committee to perpetuate rates at the long end or relax the slightly tighter stance that it adopted three weeks ago. Chairman Martin remarked that at the last meeting he had commented on the absence this year of the usual references to the February doldrums, and it seemed clear that there were no March doldrums either. As to the directive, the Chairman said it appeared that a majority favored the use of the first paragraph of the present directive and the second paragraph of the staff draft He inquired whether anyone felt strongly enough to dissent. There followed a discussion of some of the specific wording of the proposed directive, at the conclusion of which Chairman Martin remarked, as he had on previous occasions, that words meant different things to different people. With this observation, he suggested that the Committee vote on a directive in the form that had been suggested. 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 following current economic policy directive: The economic and financial developments reviewed at this meeting indicate a generally strong further expansion

of the domestic economy and the continuing need to improve our international balance of payments, as highlighted by heavy gold outflows in recent months. In this situation, it is the Federal Open Market Committee's current policy to reinforce the voluntary restraint program to strengthen the international position of the dollar, and to avoid the emergence of inflationary pressures, while accommodating moderate growth in the reserve base, bank credit, and the money supply. To implement this policy, while taking into account the forthcoming Treasury financing, System open market operations over the next four weeks shall be conducted with a view to maintaining the firmer conditions in the money market that have recently prevailed. It was understood that the next meeting of the Committee would be held on Tuesday, May 11, 1965, with the following meeting scheduled for Tuesday, May 25. The meeting then adjourned. Secretary

Attachment A CONFIDENTIAL (FR) April 12, 1965 Draft of Current Economic Policy Directive for Consideration by the Federal Open Market Committee at its Meeting on April 13, 1965 The economic and financial developments reviewed at this meeting indicate a continued rapid expansion of the domestic economy, reflecting broad underlying strength as well as extraordinary de mands for steel and autos. At the same time, with the persisting drain in our gold stock, there is need to consolidate the recent improvement in our international balance of payments. In this situation, it remains the Federal Open Market Committee's current policy to reinforce the voluntary restraint program to strengthen the international position of the dollar, and to avoid the emergence of inflationary pressures, by moderating growth in the reserve base, bank credit, and the money supply. To implement this policy, while taking into account the forthcoming Treasury financing, System open market operations over the next four weeks shall be conducted with a view to maintaining the firmer conditions in the money market that have recently prevailed.