February 8, 1966 FOMC Minutes

FOMC minutes

of the market would seem appropriate, although as a rule he did not particularly care for those terms. Under existing circum stances it might be difficult to achieve a gradual adjustment, but it would be desirable to make it as gradual as possible. He then asked Mr. Holmes if the Committee's intentions were clear. Mr. Holmes replied affirmatively. As he understood it, when considerations relating to the Treasury financing permitted, the Committee would like to have net borrowed reserves move back gradually to about where they were before the December discount rate action, recognizing that the market atmosphere now was somewhat different. While the objective might be difficult to reach, the desired course was clear. He added that he would interpret the references to the conclusion of the Treasury financing to take into account the aftermarket. Mr. Hickman asked whether the Manager would propose not to initiate a change until after any churning in the market had ended. Mr. Holmes replied that his course would depend on was related to the refunding, as best whether or not the churning If the churning appeared to be related as he could interpret it. he would not postpone firming action. to other developments Thereupon, upon motion duly made and seconded and by unanimous vote, the Reserve Bank of New York was Federal authorized and directed, until otherwise directed by the Committee, to execute in the System Account in transactions accordance with the following current economic policy directive:

The economic and financial developments reviewed at this meeting indicate that the domestic economy is expanding vigorously, with prices continuing to creep up and credit demands remaining strong. Our inter national payments continue in deficit. In this situation, it is the Federal Open Market Committee's policy to resist the emergence of inflationary pressures and to help restore reasonable equilibrium in the country's balance of payments, by moderating the 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, with appropriate regard for the current Treasury financing, shall be conducted with a view toward a gradual reduction in reserve availability. Mr. Shepardson commented that over the past several months some members had felt that the Committee should be moving toward reducing the rapid rate of credit expansion. Others had felt to slow the expansion should be made until certain that no attempt had occurred. Those developments had come to pass; developments to him that the hesitancy to move earlier meant and it seemed when everyone recognized the existence of real pressures, that now, move less gradually than otherwise the Committee might have to would be that since those possible. His own hope might have been the Committee would not now were definitely apparent, pressures them. He recognized that a manner in meeting act in too gradual to be considered, but it would Treasury financing had the current a constraint for long. not constitute

Mr. Mitchell agreed, except that he noted that conditions in the money market had been disorganized during the recent period the market even yet had not settled down. and that Chairman Martin commented that it was desirable to get as smooth a flow of funds in the money markets as possible so that when an adjustment was made it would not prove disruptive. that in carrying out today's policy decision for a He hoped as much stability as it move the Desk would maintain gradual the Committee would have By the time of the next meeting could. of which it could decide whether more information on the basis a further policy change was indicated. that the next meeting of the Committee It was agreed 1, 1966, at 9:30 a.m. be held on Tuesday, March would Thereupon the meeting adjourned. Secretary

ATTACHMENT A CONFIDENTIAL (FR) February 7, 1966 Draft Current Economic Policy Directive for Consideration by the Federal Open Market Committee at its Meeting on February 8, 1966 The economic and financial developments reviewed at this meeting indicate that the domestic economy is expanding vigorously, with prices continuing to creep up and credit demands remaining strong. Our international payments continue in deficit. In this situation, it is the Federal Open Market Committee's policy to resist the emergence of inflationary pressures and to help restore reasonable equilibrium in the country's balance of payments, by moderating the growth in the reserve base, bank credit, and the money supply. In light of the current Treasury financing, System open market operations until the next meeting of the Committee with a view to maintaining about the same shall be conducted in the money market as have prevailed in recent weeks. conditions