August 31, 1965 FOMC Minutes

FOMC minutes

Chairman Martin remarked that he was in complete agreement with the consensus that had emerged for no change in policy, and he had nothing to add to the observations that had been made. The direc tive the staff had drafted seemed to be less satisfactory this time than usual. He suggested the Committee attempt at this point to arrive at a directive that would be reasonably agreeable to a majority. To begin the effort, he proposed that Mr. Mitchell repeat the directive wording he had recommended earlier. After Mr. Mitchell had done so, Mr. Daane commented that he found Mr. Mitchell's proposal unsatisfactory on several counts. For one thing, it implied that the economic advance was resting on inven tory accunulation and was running out of steam. That might be correct but he did not think it represented the judgment of a majority of the Committee. Moreover, there were no references to price developments, or to the implications of Vietnam. He was not sure that the Committee should try to use the first paragraph of the directive as a substitute for the text of the policy record entry. but if it was to make the attempt a more balanced statement seemed to be called for. Chairman Martin then remarked that it might be desirable for the staff to attempt to develop a new draft of the directive on the basis of the comments that had been made this morning on the original draft. He proposed that, while this work was in process, the Committee session to discuss a memorandum dated today that move into executive

had been distributed to Committee members and other Reserve Bank Presidents, entitled "Contingency Planning for the Government Securities Market." Thereupon, all members of the staff left the meeting except Messrs. Young, Holmes, and Sanford. Mr. Balderston summarized the con tents of the memorandum that had been distributed, following which there was general discussion of the actions that might be appropriate under various possible contingencies. Chairman Martin then suggested that the Committee members be prepared for the possible necessity for holding a meeting, either by telephone conference or with all participants in Washington, in the interim before the meeting tentatively scheduled for September 28, 1965. There were many uncertainties existing at present, he noted, and the interval between today's date and September 28 was relatively long. Following the executive session the regular meeting resumed and Mr. Young read two new alternative drafts of the directive that had been prepared by the staff. After further discussion, a consensus emerged in favor of the shorter of the two alternatives. Thereupon, upon motion duly made and seconded, and with Mr. Treiber dissenting, the Federal Reserve Bank of New York was authorized and directed, until otherwise directed by the Committee, to execute trans actions in the System Account in accordance with the following current economic policy directive:

The economic and financial developments reviewed at this meeting indicate that the domestic economy has expanded further, but with markets characterized by uncertainties as to possible developments in steel, sterling, and Vietnam. Our international payments have reverted to deficit in August, and gold outflows have continued, although at a more moderate rate. In this situation, it remains the Federal Open Market Committee's current 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 until the next meeting of the Committee 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 unsettled conditions in securities and foreign exchange markets. his dissenting vote, Mr. Treiber said that he In explaining agreed that caution was necessary in view of the existing uncertainties in the bond and foreign exchange markets. He continued to feel, how ever, that it was desirable for the Committee to make a further slight move toward a somewhat lessened degree of credit availability at present, recognizing that in the prevailing conditions any such move must be made with caution. In his judgment such a policy decision would not have an undesirable effect on the position of sterling. It was agreed that the next meeting of the Committee would be held on Tuesday, September 28, 1965, at 9:30 a.m. Thereupon the meeting adjourned. Secretary

ATTACHMENT A CONFIDENTIAL (FR) August 30, 1965. Drafts of Current Economic Policy Directive for Consideration by the Federal Open Market Committee at its Meeting on August 31, 1965 Alternative A (no change) The economic and financial developments reviewed at this meeting indicate that the domestic economy has expanded further, our international payments have reverted to deficit in August, gold out flows have continued, and uncertainties persist in securities and foreign exchange markets. In this situation, it remains the Federal Open Market Committee's current 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 four 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 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, business sentiment has become buoyant, some prices have been under upward pressure, bank credit expansion has been vigorous thus far this year, and Federal expenditures are expected to increase in the months ahead as a result of the hostilities in Vietnam. Our inter reverted to deficit in August, gold outflows national payments have have continued, and uncertainties persist in securities and foreign In this situation: it is the Federal Open Market exchange markets. current policy to move further to strengthen the inter Committee's dollar, and to counter the emergence of national position of the pressures, by moderating somewhat the pace of growth inflationary in the reserve base, bank credit, and the money supply. System open market operations over To implement this policy, weeks shall be conducted with a view to attaining the next four firmer conditions in the money market, while taking into slightly account the unsettled conditions in securities and foreign exchange markets.