November 23, 1965 FOMC Minutes

FOMC minutes

be clear that he felt that not changing interest rates It should was very definitely a part of the economics of full employment. Chairman Martin commented that he did not think it was really a question of "either-or;" it was a question of "both." Mr. Ellis said that just because one was concerned about the quality and structure of expansion, as well as the rate of expansion, this did not necessarily mean that he had a limited horizon on the length of the expansion. System action could be taken as reflecting concern about the conditions of expansion, rather than adoption of a view that a downturn was just ahead. Referring to his earlier statement about putting on the brakes, Mr. Shepardson said that he perhaps misspoke. He did not of or need for a turndown but rather mean to imply the imminence of the rate of expansion to a more sustainable level. a slowing the situation of the Texas By way of analogy, he mentioned for his home. He might plant the fast homebuilder desiring shade provide quick shade but which is growing Chinaberry which would short-lived and extremely brittle in a storm. Or he might plant which are slow-growing but long-lived and hardy and live oaks would provide shade for his children and grandchildren. His preference, Mr. Shepardson said, was for the live oak, and likewise, in this instance, for courses of policy that would economic growth, even though a somewhat less promote longer-term pace of expansion might be involved. rapid

Chairman Martin then alluded to the modification suggested earlier by Mr. Mitchell in the language of the first paragraph of alternative A of the draft directives, and he inquired as to the members. Mr. Hayes expressed a preference wishes of the Committee for the original language of the draft directive, particularly since he felt that the introduction of the phrase "financial resources were in shorter supply" was troublesome. Others who spoke on the matter indicated that they would be agreeable to the proposed modification except for the phrase to which Mr. Hayes had referred. 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 that over-all domestic economic activity is continuing a rate of expansion comparable to the third quarter despite the contractive effect that of of a reduction in steel inventories. Business sentiment continues optimistic and financial conditions are firmer. Meanwhile, our international payments have remained in In this situation, it remains the Federal Open deficit. 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 that have prevailed since the last meeting of the Committee. Mr. Shepardson commented, with respect to his vote on the directive, that he had not dissented from the adoption of this directive because of his view that the policy move he thought was needed could appropriately come in the form of a discount rate increase. Absent such an expectation, he would have favored alternative B of the draft directives. Chairman Martin observed, in this connection, that he felt the views of the respective Committee members would be reflected adequately in their comments that would be included in the minutes of this meeting. that the next meeting of the Committee would It was agreed Tuesday, December 14, 1965, at 9:30 a.m. be held on the meeting adjourned. SecretaryThereupon

ATTACHMENT A CONFIDENTIAL (FR) November 22, 1965 Drafts of Current Economic Policy Directive for Consideration by the Federal Open Market Committee at its Meetng on November 23, 1965 Alternative A (no change) The economic and financial developments reviewed at this meeting indicate that over-all domestic economic activity is expanding strongly in a continuing climate of optimistic business sentiment and firmer financial conditions. Meanwhile, our inter national payments have remained in deficit. 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 that have prevailed since the last meeting of the Committee. Alternative B (firmer) The economic and financial developments reviewed at this meeting indicate strong further domestic economic expansion in a climate of optimistic business sentiment, with strong credit upward creep in prices. Meanwhile, our demand and some continuing international payments have remained in deficit. In this situation, it is the Federal Open Market Committee's current policy to strengthen the international position of the dollar, and to resist the emergence of inflationary pressures by moderating growth in the reserve base, bank credit, and the money supply. To implement this policy, System open market operations shall be conducted with a the next meeting of the Committee until conditions in the money market view to achieving somewhat firmer have prevailed since the last meeting of the Committee. than