May 25, 1965 FOMC Minutes

FOMC minutes

in the neighborhood of $150 million, he noted. The Chairman said that he could not support alternative A if it was taken as an instruction to the Desk to get net borrowed reserves back to around $100 million; in advocating no change in policy he meant no change in either direc tion. On the whole, he thought present policy, which he would describe as "mildly restrictive," was appropriate. Mr. Mitchell observed that the second paragraph of alternative A called for maintaining about the same conditions in the money market and not for maintaining net borrowed reserves at any particular level. On that basis the figures for net borrowed reserves could be expected to fluctuate He was unclear from the discussion whether it was now proposed to shift to a net borrowed reserve target or to continue the earlier practice. Chairman Martin commented that he personally did not favor introducing numbers for net borrowed reserves into the directive. But in its discussions around the table the Committee had tended toward the use of such numbers in measuring the results achieved by the Desk. The Chairman then noted that Mr. Daane had suggested changes in both paragraphs of alternative A, the first but not the second of which seemed acceptable to those commenting on them. He proposed that the Committee vote on alternative A with Mr. Daane's first pro posed amendment. There followed some further discussion of the wording of the directive.

Thereupon, upon motion duly made and seconded, the Federal Reserve Bank of New York was authorized and directed until otherwise directed by the Commit tee, to execute transactions in the System Account in accordance with the following current economic policy direc tive: The economic and financial developments reviewed at this meeting indicate a generally strong further expansion of the domestic economy, although at a somewhat slower pace, and some improvement in our international balance of payments, but with gold outflows continuing. In this situation, it remains the Federal Open Market Committee's current policy to reinforce the voluntary restraint pro gram to strengthen the international position of the dollar, and to avoid the emergence of inflationary pres sures, while accommodating moderate growth in the reserve base, bank credit, and the money supply. To implement this policy, System open market operations over the next three weeks shall be conducted with a view to maintaining about the same conditions in the money market as have prevailed in recent weeks. Votes for this action: Messrs. Martin, Bryan, Daane, Galusha, Maisel, Mitchell, Robertson, and Scanlon. Votes against this action: Messrs. Hayes, Balderston, Ellis, and Shepardson. Mr. Hayes said he dissented from this action because he considered it desirable to move toward firmer money market conditions at present, even if the change was a slight one. Messrs. Balderston, Ellis, and Shepardson also dissented because they favored a move toward firmer money market conditions, for the reasons indicated by their statements earlier in the meeting.

It was agreed that the next meeting of the Committee would be held on Tuesday, June 15, 1965, at 9:30 a.m. Thereupon the meeting adjourned. Secretary

Attachment A CONFIDENTIAL (FR) May 24, 1965 Drafts of Current Economic Policy Directive for Consideration by the Federal Open Market Committee at its Meeting on May 25, .1965 Alternative A (no change in policy) The economic and financial developments reviewed at this meeting indicate maintenance of a high level of economic activity and some improvement in our international balance of payments, but with gold outflows continuing. 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, while accommodating moderate growth in the reserve base, bank credit, and the money supply. To implement this policy, System open market operations over the next three 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 (firming) The economic and financial developments reviewed at this meeting indicate maintenance of a high level of economic activity with some upward pressures on prices, a large expan sion of bank credit and reserves in recent months, and continuing gold outflows despite some improvement in our international balance of payments. In this situation, it is the Federal Open Market Committee's current policy to rein force 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 and bank credit. To implement this policy, System open market operations over the next three weeks shall be conducted with a view to attaining slightly firmer conditions in the money market.