April 12, 1966 FOMC Minutes

FOMC minutes

The Chairman noted that Mr. Shepardson's comment was to the effect that total reserves should be taken into consideration. He did not think that anyone would disagree with that; it was just a matter of the degree. Mr. Hayes observed that, while the objective was clear, there was a question arising from the problems of implementing such an instruction, particularly within a short time period. Mr. Hickman noted that there would be an interval of four weeks before the Committee's next meeting. He suggested that it might be desirable for the Committee to hold an interim meeting, perhaps by telephone conference, if there again was a divergence between developments in the market and the Committee's intentions such as he thought had occurred in the recent period. Chairman Martin commented that it was always possible to call a meeting of the Committee if one was required. In general, however, he did not favor telephone conference meetings unless there was something of real importance to discuss. he agreed with the Manager's view Mr. Daane remarked that long-term rates was atrributable to that the recent decline in to the change in expecta in the market, particularly developments Expectations were always subject tions regarding a tax increase. could have much more significant to change and such developments or $50 million in net borrowed than an increase of, say, $25 effects reserves.

Chairman Martin said that whatever change might occur in net borrowed reserves he would not want so much pressure to be put on the market as to force an increase in the discount rate. Several other members indicated that they concurred in that view. Mr. Swan, noting that the Federal funds rate recently had touched 4-7/8 per cent for the first time, expressed the opinion that on the basis the Chairman had mentioned it might not be possible to go much beyond the existing degree of pressure. Chairman Martin then said he gathered that all of the prepared to vote for alternative B for the directive members were as it had been interpreted. As to Mr. Irons' suggestion that the be replaced by the word "restricting" in the last word "moderating" of the first paragraph, he personally had no strong feeling. sentence that when the directives for the calendar Mr. Daane remarked year were published in the Committee's record of policy actions some readers might interpret the substitution as reflecting a in policy when none was in fact intended. How significant change ever, he had no real quarrel with either word. Mr. Mitchell observed that if "restricting" was ever a proper word to use, it was the appropriate word now. Other members also indicated that they favored the change. 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 the domestic economy is expanding vigorously, with industrial 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 to resist inflationary pressures and to help policy restore reasonable equilibrium in the country's balance of payments, by restricting the growth in the reserve base, bank credit, and the money supply. this policy, System open market opera To implement tions until the next meeting of the Committee shall be conducted with a view to attaining some further gradual in reserve availability, while taking into reduction account the forthcoming Treasury financing. the next meeting of the Committee would be It was agreed held on Tuesday, May 10, 1966, at 9:30 a.m. Thereupon the meeting adjourned. Secretary

ATTACHMENT A CONFIDENTIAL (FR) April 11, 1966 Drafts of Current Economic Policy Directive for Consideration by the Federal Open Market Committee at its Meeting on April 12, 1966 First paragraph The economic and financial developments reviewed at this meeting indicate that the domestic economy is expanding vigorously, with industrial 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 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. Second paragraph Alternative A (preserving about the current degree of firmness) To implement this policy, while taking into account the forthcoming Treasury financing, System open market operations until the next meeting of the Committee shall be conducted with a view to maintaining firm conditions in the money market and continuing to exert pressure on bank reserve positions. Alternative B (continued gradual firming) To implement this policy, System open market operations next meeting of the Committee shall be conducted with until the a view to attaining some further gradual reduction in reserve availability, while taking into account the forthcoming Treasury financing.