June 15, 1965 FOMC Minutes

FOMC minutes

As he had indicated earlier, France probably would buy at least $50 million of gold in June, and there also might be purchases by other countries. Mr. Mitchell then asked if the staff would explain the rationale underlying the deletion of the phrase in question from alternative A and its retention in alternative B. Mr. Noyes responded that there was no question about the facts; there had been some gold outflow recently and some was still in prospect. At the time the draft was drawn up, however, it appeared that the rate of outflow would be somewhat less this month than it had been earlier. The staff had felt that members who favored further firming would do so partly because some outflow was continuing, and therefore would want to refer to that fact in the directive. Accordingly, the reference was retained in alternative B. It was omitted from alternative A, on the other hand, because it was thought that members favoring no change in policy would tend to place primary emphasis in their thinking on the reduction in the and might consider the reference to be no longer rate of outflow, appropriate. Several members indicated that they thought the reference should be retained in the directive even if the decision in question was to make no change in policy.

The Chairman then proposed that the Committee vote on a directive based on alternative A, but incorporating the phrase relating to gold outflows, including the statement that the domestic expansion was continuing at a slower pace than in the first quarter, and omitting the final parenthetical clause. 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 continuing expansion of the domestic economy, although at a somewhat slower pace than in the first quarter, and maintenance of earlier 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 over the next four weeks shall be conducted operations with a view to maintaining about the same conditions in the money market as have prevailed in recent weeks. Mr. Hayes said that, while his inclination toward further firming was clear from his earlier comments, he had voted in favor of the directive because he thought that under present conditions there was much to be said for unanimity in any policy action the

Committee might take. Messrs. Ellis and Shepardson commented that they wanted to associate themselves with Mr. Hayes' statement. It was agreed that the next meeting of the Committee would be held on Tuesday, July 13, 1965, at 9:30 a.m. Thereupon the meeting adjourned. Assistant Secretary

CONFIDENTIAL (FR) ATTACHMENT A June 14, 1965. Drafts of Current Economic Policy Directive for Consideration by the Federal Open Market Committee at its Meeting on June 15, Alternative A (no change in policy) The economic and financial developnents reviewed at this meeting indicate continuing expansion of the domestic economy and maintenance of earlier 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, 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 four weeks shall be conducted with a view to main taining about the same conditions in the money market as have prevailed in recent weeks (, while minimizing such downward pressures on Treasury bill rates as may develop). Alternative B (firming) The economic and financial developments reviewed at this meeting indicate continuing expansion of the domestic economy with some upward pressure on prices, a large expansion of bank thus far this year, and maintenance of earlier improvement credit of payments, but with gold outflows in our international balance continuing. 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, the emergence of inflationary pressures, by moderating and to avoid growth in the reserve base and bank credit. To implement this policy, System open market operations over the next four weeks shall be conducted with a view to attaining firmer conditions in the money market. slightly