August 10, 1965 FOMC Minutes

FOMC minutes

one point, however, that he thought needed to be emphasizedas President Johnson had said recently, the country was at war in Vietnam. Many might view the hostilities there as a small war, or a brush fire, but he did not. In his judgment it was necessary for the Committee to bear in mind that, while there had been no declaration of war, a war-time psychology might be developing more rapidly than was generally realized. The Chairman went on to say that most members seemed to agree today that no change should be made in policy. Those favored so modest a change that it would whose views differed difficult, in his opinion, to spell it out in the directive. be He proposed that the Committee vote on a directive consisting alternative A, with the change Mr. Mitchell of the suggested had suggested. Mr. Treiber commented that Mr. Mitchell had proposed substituting the words "to maintain" the international position staff's suggested words, "to help defend." of the dollar for the to either, he would like to see the words "to In preference He noted that the previous directive had strengthen" used. included the phrase "to reinforce the voluntary restraint the international positions of the dollar," program to strengthen be undesirable to drop the word "strengthen." and he thought it would

Mr. Mitchell said that Mr. Treiber's suggestion was agreeable to him. 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 follow ing current economic policy directive: The economic and financial developments reviewed at this meeting indicate that the domestic economy has expanded further, but at a slower pace than early in the year, and that the improvement in our international payments that occurred in the second quarter has been maintained for the time being, although gold outflows have continued and international developments are creating uncertainties in securities and foreign exchange markets. In this situation, it remains the Federal Open Market Committee's currer.t policy 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, taking into account the Treasury financing about while to be completed and the unsettled conditions in and foreign exchange markets. securities that the next meeting of the Committee would be It was agreed on Tuesday, August 31, 1965, at 9:30 a.m. held Thereupon the meeting adjourned. cretary

ATTACHMENT A CONFIDENTIAL (FR) August 9, 1965 Drafts of Current Economic Policy Directive for Consideration by the Federal Open Market Committee at its meeting on August 10, 1965 Note: Because of the divergent interpretations of recent economic and financial developments expressed at the July 13 meeting, three alternative drafts of the directive are given below. Alternative A (no change) The economic and financial developments reviewed at this meeting indicate that the domestic economy has expanded further, but at a slower pace than early in the year, and that the improvement in our international payments that occurred in the second quarter has been maintained for the time being, although gold outflows have continued and international developments are creating uncertanties in securities and foreign exchange markets. In this situation, it remains the Federal Open Market Committee's current policy to help defend 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, while taking into account the Treasury financing about to be completed and the unsettled conditions in securities and foreign exchange markets. Alternative B (firming) The economic and financial developments reviewed at this meeting indicate that the domestic economy has expanded further, some prices have been under upward pressure, bank credit and money supply expansion has been vigorous over recent months, and prospects are that increased Federal expenditures as a result of hostilities in Vietnam will expand overall demand in the months ahead. Although U.S. capital outflow has been moderate, reflecting the large initial impact of the Administration's balance of payments program, the trade surplus has diminished, gold outflows have continued, and international developments are creating exchange markets. In this in securities and foreign uncertainties it is the Federal Open Market Committee's current policy to situation, position of the dollar, and to avoid the help defend the international emergence of inflationary pressures, by moderating growth in the reserve base, bank credit, and the money supply.

CONFIDENTAL (FR) -2 To implement this policy, System open market operations over the next three weeks shall be conducted with a view to attaining somewhat firmer conditions in the money market, while taking into account tne Treasury financing about to be completed and the unsettled conditions in securities and foreign exchange markets. Alternative C (easing) The economic and financial developments reviewed at this meeting indicate that the domestic economy has expanded further, although at a slower pace than early in the year. Inventories have continued to accumulate, particularly of steel, and final demands appear to be rising more slowly than industrial productive capacity. Recent price movements have been mixed and noncumulative in nature. Some long-term interest rates are up moderately this year. The improved position of our international payments has been maintained, and gold takings by foreign central banks have been somewhat reduced, but international developments are causing uncertainties in securities and foreign exchange markets. In this situation, it is the Federal Open Market Committee's current policy to facilitate fuller utilization of resources while helping to defend the international position of the dollar and to avoid the emergence of inflationary pressures, by accom the reserve base, bank credit, and the modating moderate growth in money supply. System open market operations over To implement this policy, the next three weeks shall be conducted with a view to attaining in the money market, taking into account somewhat easier conditions financing about to be completed and the unsettled condi the Treasury and foreign exchange markets. tions in securities