June 28, 1966 FOMC Minutes

FOMC minutes

Mr. Holmes noted that in May the bank credit proxy had increased at only a 2-1/2 per cent annual rate. Before the last meeting the Board's staff projected a rise in June at about a 6-1/2 per cent annual rate. Around mid-June their estimate, and also that of the New York Bank, was a 3-1/2 per cent rate; and now the Board's projection was about 5 per cent and the New York Bank's about 6 per cent. For July the staff projections ranged from 9 to 13 per cent, with the increase reflecting the large rise from the middle to the end of June that resulted from tax payments, including the speed-up in payments of withholding taxes. If the Committee felt that an increase in July in the bank credit proxy on the order of 10 or 11 was too great, it could call for activating the proviso per cent in the directive and moving toward deeper net borrowed reserves. Chairman Martin reiterated his view that an attempt to use present circumstances would lead to statistical measures under the Committee wanted the Manager to have difficulties. He thought to move towards firming if the latitude and that it would like there was no such opportunity it opportunity presented itself. If that would result in chaos the Manager to act in a way did not want A or B could be judgment either alternative in the market. In his within that framework. interpreted favored the course suggested by Mr. Maisel said he should operate to that the Desk Holmes' final remark--namely, Mr.

prevent the bank credit proxy from rising at a rate as rapid as or 11 per cent in July, if it could do so. A number of members concurred in Mr. Maisel's statement. Chairman Martin then asked whether there would be any objections to adoption of alternative A for the second paragraph of the directive, and none was heard. 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 follow ing current economic policy directive: The economic and financial developments reviewed at this meeting indicate that, while there has been some reduction in automobile sales and residential construction, over-all domestic economic activity is continuing to expand, with industrial prices rising further. Mortgage market conditions remain tight and total credit demands continue strong. The foreign trade surplus has declined and the international payments deficit has increased. In this situation, it is the Federal Open Market Committee's policy to resist inflationary pressures and to strengthen efforts to restore reasonable equilibrium in the country's balance of payments, by restricting 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 maintaining about the current state of net reserve availability and related money market conditions, except as changes may be needed to moderate unusual liquidity pressures at financial institutions; provided, however, that if such liquidity pressures are not unusually strong and required reserve increases are larger than expected, opera tions shall be conducted with a view to attaining some further gradual reduction in net reserve availability and firming of money market conditions.

It was agreed the next meeting of the Committee would be held on Tuesday, July 26, 1966, at 9:30 a.m. Thereupon the meeting adjourned. Secretary

ATTACHMENT A CONFIDENTIAL (FR) June 27, 1966 Drafts of Current Economic Policy Directive for Consideration by the Federal Open Market Committee at its Meeting on June 28, 1966. First paragraph The economic and financial developments reviewed at this meeting indicate that, while there has been some reduction in auto mobile sales and residential construction, over-all domestic economic activity is continuing to expand, with industrial prices rising further. Mortgage market conditions remain tight and total credit demands continue strong. The foreign trade surplus has declined and the international payments deficit has increased. In this situation, it is the Federal Open Market Committee's policy to resist inflation ary pressures and to strengthen efforts to restore reasonable equilibrium in the country's balance of payments, by restricting the growth in the reserve base, bank credit, and the money supply. Second paragraph Alternative A (preserving current firmness, with qualifications) To implement this policy, System open market operations until the next meeting of the Committee shall be conducted with a about the current state of net reserve avail view to maintaining ability and related money market conditions, except as changes may to moderate unusual liquidity pressures at financial be needed (; provided, however, that if such liquidity pressures institutions unusually strong and required reserve increases are larger are not operations shall be conducted with a view to attain than expected, in net reserve availability and ing some further gradual reduction firming of money market conditions). B (firming, with degree conditioned by movement in Alternative required reserves while taking account of any unusual To implement this policy, at financial institutions, System open market liquidity pressures until the next meeting of the Committee shall be conducted operations further gradual reduction in net reserve with a view to attaining some of money market conditions, and availability and attendant firming somewhat greater restraint if required reserve increases to attaining are larger than expected.