July 26, 1966 FOMC Minutes

FOMC minutes

Mr. Hayes' suggestion for the first sentence and a modified version of Mr. Brimmer's suggestion for the sentence referring to the balance of payments. Mr. Hayes then noted that a number of changes had been sug gested in the staff's draft of the second paragraph of the directive, most of which were primarily matters of wording. However, Mr. Mitchell had suggested a more substantive change, calling for further firming to the extent that the Treasury financing permitted. As he understood the views expressed, a majority wanted to make any further firming contingent on developments with respect to required reserves as well as on conditions associated with the financing. Mr. Mitchell said that he would be prepared to accept a second paragraph along the lines of the staff draft if it was clear that a majority did not favor language such as he had proposed. He suggested that an expression of views be called for with respect to his proposed language. Mr. Shepardson also spoke in favor of a poll of the Committee on the question. the Secretary then polled the Commit At Mr. Hayes' request, Bopp, Brimmer, Mitchell, and Shepardson indicated that tee. Messrs. Mr. Mitchell had proposed, and the they would prefer the language indicated that they would not. other six members

The Committee then agreed upon a second paragraph consisting of the staff draft with wording changes of the kind suggested by Mr. Ellis. 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 Sys tem Account in accordance with the following current economic policy directive: The economic and financial developments reviewed at this meeting indicate that over-all domestic economic activity appears to be expanding somewhat more rapidly than in the second quarter despite weakness in residen tial construction, with industrial prices rising further. Total credit demands continue strong and financial markets, particularly for mortgages, remain tight. Despite the statistical improvement resulting largely from special the balance of payments situation continues transactions, reflect a sizable underlying deficit. In this situation, to it is the Federal Open Market Committee's policy to resist pressures and to strengthen efforts to restore inflationary reasonable equilibrium in the country's balance of payments, by restricting the growth in the reserve base, bank credit, and the money supply. policy, while taking into account To implement this forthcoming Treasury financing, System open market the until the next meeting of the Committee shall operations with a view to maintaining about the current be conducted of net reserve availability and related money market state however, that if required reserves conditions; provided, expand more rapidly than expected and if conditions Treasury financing permit, operations associated with the 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 that the next meeting of the Committee would be held on Tuesday, August 23, 1966, at 9:30 a.m. Thereupon the meeting adjourned.

ATTACHMENT A CONFIDENTIAL (FR) July 25, 1966 Draft of Current Economic Policy Directive for Consideration by the Federal Open Market Committee at its Meeting on July 26, 1966. The economic and financial developments reviewed at this meeting indicate that over-all domestic economic activity is expand ing somewhat more rapidly than in the second quarter despite weakness in residential construction, with industrial prices rising further. Total credit demands continue strong and financial markets, particu larly for mortgages, remain tight. The balance of payments continues in deficit. In this situation, it is the Federal Open Market Commit tee'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, 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 about the current state of net reserve availability and related money market conditions; provided, however, that if required reserves are stronger than expected and conditions associated with the Treasury financing permit, operations shall be conducted with a view to attaining some further gradual reduction in net reserve availability and firming of money market conditions.