July 13, 1965 FOMC Minutes

FOMC minutes

cases had been made in the discussion today for both of the suggested alternatives for :he directive. One might say that the water in the economic radiator had been boiling earlier in the year, but was not boiling now. Whether it would be again later was, of course, another question. The Committee might have a better picture of the situation at its next meeting. In his judgment, the Chairman said, monetary policy recently had been performing about as well as possible under the prevailing circumstances. While he recognized that the Committee might have to move in one direction or the other later, he favored the suggested alternative A for the directive today. He noted that deletion of the word "somewhat" from the first sentence of the draft had been suggested, and while the matter did not appear to be of great importance he was agreeable to that change. He then proposed that the Committee vote on a directive consisting of alternative A with the word "somewhat" deleted. commented that Mr. Balderston's proposed Mr. Shepardson revision of the balance of payments reference in the draft directive of consideration even if the majority favored no change in seemed worthy was pointed out that the proposed In the ensuing discussion it policy. come of a type not of developments to implied a forecast language After further directives. in the Committee's included customarily to the statement relating to revise the it was decided consideration

balance of payments from that in the staff drafts, without employing language that implied a forecast. Thereupon, upon motion duly made and seconded, and with Mr. Ellis 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: The ecoromic and financial developments reviewed at this meeting indicate continuing expansion of the domestic economy, although at a slower pace than in the first quarter. Reflecting the large initial impact of the Administration's balance of payments program, there was a surplus in our international payments in the second quarter. In this situation, and with gold outflows continuing, 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, and taking into account the forthcoming Treasury financing, 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. his favorable vote wi'h indicated that he had cast Mr. Shepardson some reservations. received from Senator a telegram he had Martin then read Chairman Senator had urged the 25, 1965, in which the J. McCarthy on June Eugene policy "with the money and credit Board to reexamine Federal Reserve the tight credit sit liquidity and relieve view of providing greater that, with continuation had expressed the judgment uation." The Senator

of present conditions, "to place critical pressure on the British pound would eventually result in economic slowdown in the United States." It was agreed that the next meeting of the Committee would be held on Tuesday, August 10, 1965, at 9:30 a.m. Thereupon the meeting adjourned. Assistant Secretary

ATTACHMENT A CONFIDENTIAL (FR) July 13, 1965 Drafts of Current Economic Policy Directive for Consideration by the Federal Open Market Committee at its Meeting on July 13, 1965 Alternative A (no change in policy) 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. They also indicate a surplus in our international payments in the second quarter, reflecting the large initial impact of the Administration's balance of payments program. In this situation, and with gold outflows continuing, 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, and taking into account the forth coming Treasury financing, 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 (firming) 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, with some upward pressure on prices and rapid growth in bank credit. They also indicate a surplus in our international payments in the second quarter, reflecting the large initial impact of the Administration's balance of payments program. In this situation, and with gold outflows continuing, it is the Federal Open Market Committee's current policy to reinforce the voluntary restraint program to strengthen the international position of the dollar, of inflationary pressures, by moderating and to avoid the emergence in the reserve base and bank credit. growth this policy, System open market operations over To implement the next four weeks shall be conducted with a view to attaining conditions in the money market, while taking into slightly firmer account the forthcoming Treasury financing.