March 22, 1966 FOMC Minutes

FOMC minutes

the target for net borrowed reserves at the present level of around $200 million. He asked, however, whether readopting the existing directive would not imply some further firming, rather than maintaining the present degree of firmness. He would not want to see net borrowed reserves deepen to $300 million, for example, unless the demand for bank credit strengthened. Chairman Martin observed that it probably would be better to have net borrowed reserves fluctuate, depending on the strength of the pressures in the money market, rather than to have them held at any specific level. He did not believe it was possible, however, to spell out that sort of instruction in the directive. The problem was typical of those the Committee often faced in composing its directive. Perhaps Mr. Brimmer, as the newest member, would like to try his hand at working out such problems. Mr. Daane commented that he thought the objective sought by Mr. Treiber's proposed amendment to the staff's draft directive avoid the kinks in the money market that might was simply to was too close allegiance to a target for net develop if there that objective could be accomplished borrowed reserves. Perhaps the framework of the existing directive. within that Mr. Hickman's point seemed to be a Mr. Swan said existing directive called for further gradual valid one, since the reduction in reserve availability.

Mr. Robertson noted that the net borrowed reserve target he had recommended in suggesting that the existing directive be renewed was one fluctuating around $200 million--the present level--and moving up or down from that level depending on the strength of required reserves. Chairman Martin said he doubted that monetary policy could be formulated as a series of still pictures. It was a moving stream, constantly flowing in one direction or the other, and to try to stop the stream could change the whole course of policy. Mr. Hickman remarked that he had favored the recent firming actions. He did not want to overdo them, however, and did not favor further firming until the Committee had more time to assess developments. He was prepared to vote for readopting the existing directive if it was to be interpreted in the manner Mr. Robertson suggested. Chairman Martin said it was clear to him that the Committee would not want to overdo firming action. Treiber observed that the existing directive seemed Mr. light of the discussion around the table. workable to him in the Thereupon, upon motion duly made and by unanimous vote, the Federal seconded, and of New York was authorized and Reserve Bank otherwise directed by the directed, until to execute transactions in the Committee, in accordance with the fol System Account current economic policy directive: lowing

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 it is the Federal Open Market Committee's situation, policy to resist 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 shall be conducted with a view to attaining some fur ther gradual reduction in reserve availability. It was agreed the next meeting of the Committee would be held on Tuesday, April 12, 1966, at 9:30 a.m. Thereupon the meeting adjourned. Secretary

ATTACHMENT A CONFIDENTIAL (FR) Drafts of Current Economic Policy Directive for Consideration by the Federal Open Market Committee at its Meeting on March 22, 1966 Alternative A (no further change) The economic and financial developments reviewed at this meeting indicate that the domestic economy is expanding vigorously, with prices rising further 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 infla tionary pressures and to help restore reasonable equilibrium in the country's balance of payments, by maintaining moderate rates of 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 present level of net reserve availability. Alternative B (further gradual firming) The economic and financial developments reviewed at this meeting indicate that the domestic economy is expanding vigorously, with prices rising further and credit demands remaining strong, Our international payments continue in deficit. In this situation, Open Market Committee's policy to resist infla it is the Federal and to help restore reasonable equilibrium in tionary pressures by moderating the growth in the the country's balance of payments, reserve base, bank credit, and the money supply. this policy, System open market operations To implement meeting of the Committee shall be conducted with a until the next view to attaining some further gradual reduction in net reserve availability.