September 28, 1965 FOMC Minutes

FOMC minutes

September averages now were inconsistent with one another. As he understood the staff and the Manager, net borrowed reserves would have to be below $118 million if the bill rate was to be maintained at less than 4 per cent. Mr. Holmes agreed that money market relations had changed. He noted that in its comment on question 6 the Board's staff had estimated that net borrowed reserves of $150 million were likely to be associated with a bill rate near the upper end of the 3.95 4.10 range. Mr. Hickman asked what level of bill rates was likely to be consistent with net borrowed reserves of about $118 million. Mr. Holmes replied that he found it hard to answer that question with any precision. Some market forces would be tending to push bill rates higher and some to move them lower, and he did not think one could be specific about the outcome. Chairman Martin then proposed that a vote be taken, essentially on the question whether to maintain the status quo as constituted with respect to market rates or to roll presently to lower levels. That, he thought, was what the issue rates back amounted to. that the vote be taken on a Mr. Shepardson suggested directive with the last phrase of the second paragraph of

alternative A modified to read, "with a view to maintaining about the current conditions in the money market." Thereupon, upon motion duly made and seconded, and with Messrs. Maisel, Mitchell, and Robertson 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 economic and financial developments reviewed at this meet.ng indicate that the domestic economy has expanded further in a climate of optimistic business sentiment and firmer financial conditions, and that our international payments have been in deficit since midyear. Some of the uncertainties previously affecting foreign exchange markets have diminished. In this situation, it remains the Federal Ope 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, and taking into account the current Treasury financing, System open market operations until the next meeting of the Commmittee shall be conducted with a view to maintaining about the current conditions in the money market. Chairman Martin then noted that there had been distributed copies of a letter dated September 21, 1965, from Congressman Wright Patman, Chairman of the House Committee on Banking and Currency, that certain recent records of the Open Market Committee requesting be made available in his office at an agreed time, with necessary personnel from the Committee present, so that he might review and

examine the records. These included records relating to the dollar value of the portfolio, trading in the Account, income of the Account, the procedural way in which it was obtained, the procedural way in which it was transferred, and the way in which the Federal Reserve Board and the Reserve Banks received their operating income. After discussion, the staff of the Committee was authorized to assemble appropriate records bearing on the questions raised, with the understanding that arrangements would thereafter be made for their transmittal. Secretary's note: The following letter was sent to Congressman Patman, over the signature of Chairman Martin, on October 1, 1965: This is in reply to your letter dated September 21, in which you request information relating to the securities System Open Market Account: and the income derived in the staff of the Federal Open from these securities. The Market Committee is getting together the records bearing on the questions raised in your letter. to get in touch with Mr. Nelson I have asked Mr. Cardon ready, so that arrangements may be made when this material is review and examinations referred to in your letter. for the of the Committee would be was agreed that the next meeting It 12, 1965, at 9:30 a.m. held on Tuesday, October Thereupon the meeting adjourned. Secretary

ATTACHMENT A CONFIDENTIAL (FR) September 27, 1965 Drafts of Current Economic Policy Directive for Consideration by the Federal Open Market Committee at its Meeting on September 28, 1965 Alternative A (no change) The economic and financial developments reviewed at this meeting indicate that the domestic economy has expanded further in a climate of optimistic business sentiment and firmer financial conditions, and that our international payments have been in deficit since midyear. Some of the uncertainties previously affecting foreign exchange markets have diminished. In this situation, it remains the Federal Open Market Commictee'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, and taking into account the current Treasury financing, System open market operations until the next meeting of the Committee shall be conducted with a view to maintain ing about the same conditions in the money market as have prevaile in recent weeks. Alternative B (firming) The economic and financial developments reviewed at this meeting indicate that the domestic economy has expanded further in a climate of optimistic business sentiment and firmer financial conditions, and that our international payments have been in deficit Some of the uncertainties previously affecting since midyear. foreign exchange markets have diminished. In this situation, it is the Federal Open Market Committee's current policy to move further to strengthen the international position of the dollar, and to counter pressures, by moderating somewhat the the emergence of inflationary pace of growth in the reserve base, bank credit, and the money supply. while taking into account the To implement this policy, Treasury financing, System open market operations until current shall be conducted with a view the next meeting of the Committee firmer conditions in the money market. to attaining slightly