July 11, 1966 FOMC Minutes

FOMC minutes

more severe emergency than now appeared to exist, and in any case its use should be postponed for at least a day or so. Mr. Maisel then withdrew from the meeting. Mr. Robertson noted that the increase in reserve require ments recently approved by the Board, which would absorb some reserves, would become effective at reserve city banks on Thursday of this week. He added that the Board had been considering the possibility of issuing an explanatory statement if the reserve figures published appeared to indicate that the stance of System policy had changed. The statement contemplated might be along the lines of the following draft: The movement of checks between cities and between Federal Reserve Districts has been slowed by the air line strike. The Federal Reserve Banks are making every effort to minimize delay of intercity and interdistrict check clearances by the use of air carriers still operating and by the use of ground transportation. Nevertheless, some effects of the temporary slowdown in check clearings can be expected to be felt in financial markets, and to be reflected in various including the weekly Federal Reserve Statistics data, relating to factors affecting member bank reserves. An increase in the amount of reserves available to the banking system may be occasioned by the delay in check clearings. While the Federal Reserve should be able to absorb at least part of any reserve increase it may well be that some easing in money so occasioned, market conditions may ensue, and that figures on net reserves of member banks may be smaller than borrowed otherwise might be the case. Such occurrences should be and should not be interpreted as reflecting temporary, any change in monetary and credit policy.

Mr. Robertson commented that the Board had not yet decided to issue a statement of that kind, but had had the draft prepared for possible use if the need arose. Mr. Swan asked whether it might not be desirable to postpone any discussions of the proposed technique with dealers if the Committee decided that it should not be used immediately. Mr. Holmes agreed that it would not be wise to discuss the technique with the dealers if it was not clear that it was likely to be used. He added that he had just been informed that the latest projection of net borrowed reserves for the current week was $140 million. That projection allowed for the estimated impact of the strike on float tomorrow and Wednesday. Mr. Hayes commented that he understood that the projections also made allowances for the reserve requirement increase. He that the Committee be polled on the question of then suggested whether the Manager should use the proposed technique if necessary. been enough expressions of concern today to make it There had quite clear that if used it should be only with reluctance, and as the least undesirable of the available alternatives. the course of the poll all members of the Committee In that they would approve use of the proposed technique, indicated statements to that effect with further but a number supplemented comments.

Mr. Swan said his position was based on an understanding that the technique would not be used until the evidence of its need was considerably stronger than it was at present. Mr. Robertson said he approved the proposal with great reluctance and with the hope that it would be used only if the situation worsened considerably. Mr. Shepardson associated himself with Mr. Robertson's position. Mr. Brimmer said it would be agreeable to him for the Manager to proceed with the discussions with dealers tomorrow if he found that necessary. Mr. Hickman said he would prefer some delay in use of the technique, and that any use be reluctant. He hoped that it would not be necessary to use the technique at all. Mr. Hayes said that the Committee's intent seemed clear; the Manager could use the proposed technique but he should degree of reluctance expressed by individual recognize the high had unanimously approved the members. Since the Committee should be prepared to rely on proposal, however, he thought it He asked whether any members judgment and analyses. the Manager's disagreed with that statement. only would he prefer to delay Mr. Swan commented that not developments, but he also thought implementation pending further

that the Desk should not necessarily offset all of the expected increase in float. Mr. Hayes acknowledged that individual members had expressed various kinds and degrees of qualification. Nevertheless, the Manager was faced with the need to make operating decisions, and he had to know whether he was free to use the technique if in his judgment it was necessary. Mr. Robertson said there was no question in his mind on that point. All members had confidence in the Manager, and he had been empowered to use the technique. The hope had been expressed that it would be used with reluctance and that its use would be avoided if possible. Mr. Hayes commented that Mr. Robertson's observation could stand as a statement of the Committee's consensus. Thereupon the meeting adjourned. Assistant Secretary