March 1, 1966 FOMC Minutes

FOMC minutes

allocating bank credit, by remaining neutral on the subject of interest rates. At the conclusion of the discussion Chairman Martin commented that he thought it was fair to say that a number of members of the Committee were opposed to the suggested joint statement by the supervisory agencies, and that there was considerable sympathy with the thought that the System should do could through conversations with bankers. It was what it important that these conversations be informal and held on an individual basis, and that they not be viewed as an alternative to the usual instruments of monetary policy. He was not particularly concerned about the possibility that the press would exaggerate their implications; there already had been press stories to the effect that some Reserve Bank Presidents had been discussing the problems of credit restraint with bankers, and keeping in continual touch with bankers on such problems was part of the System's job. Returning to the subject of today's policy decision, Chairman Martin noted that the majority of the Committee appeared to favor alternative B of the draft directives, and that several Robertson's suggested deletion of the words had agreed with Mr. "the emergence of" from the reference to inflationary pressures in the first paragraph. Mr. Maisel, however, had expressed a preference for a different formulation.

Mr. Maisel commented that he could accept alternative B. He hoped, however, that the Desk would interpret the language calling for a "gradual reduction in reserve availability" as meaning a gradual reduction in the rate of growth of aggregate reserves. Mr. Hayes said he thought the language of the first and second paragraphs of the directive taken together made that point quite clear. Thereupon, upon motion duly made and seconded, and by unan imous 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 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 pressures and to help restore reasonable inflationary 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 until the next meeting of the Committee shall operations with a view to attaining some further be conducted gradual reduction in reserve availability.

It was agreed that the next meeting of the Committee would be held on Tuesday, March 22, 1966, at 9:30 a.m. Thereupon the meeting adjourned. Secretary

ATTACHMENT A CONFIDENTIAL (FR) February 28, 1966 Drafts of Current Economic Policy Directive for Consideration by the Federal Open Market Committee at its Meeting on March 1, 1966 First Paragraph 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 payments continue in deficit. In this strong. Our international the Federal Open Market Committee's policy to situation, it is resist the emergence of inflationary pressures and to help restore equilibrium in the country's balance of payments, by reasonable moderating the growth in the reserve base, bank credit, and the money supply. Second Paragraph A (No change in policy): Alternative this policy, System open market operations To implement shall be conducted with the next meeting of the Committee until degree of reserve availability. a view to maintaining the present Alternative B (Moderate firming): System open market operations To implement this policy, shall be conducted with meeting of the Committee until the next reduction in reserve some further gradual a view to attaining availability.