September 13, 1966 FOMC Minutes

FOMC minutes

the effective use of the new authority. In response to the only question asked of him, he had expressed the view that the bill as written was better than nothing. Chairman Martin then noted that a staff memorandum dated September 1, 1966 and entitled "Contingency planning for the U.S. Government securities and other financial markets" had been distributed to the Committee.1/ He invited Mr. Holland to comment. Mr. Holland said that the memorandum had been prepared by Board staff members, in consultation with staff of the New York Reserve Bank and the Treasury, in accordance with the Committee's instructions at the previous meeting. The object was to bring up to date a similar prepared a year ago when there also was concern about contingency plan a possible sterling crisis. As in the earlier memorandum, the purpose but rather to discuss a not to resolve basic issues of policy was that would allow time for such policy decisions in "holding operation" prevailing, and the approach was light of the specific circumstances the earlier contingency plan general. The differences from fairly three main differences in underlying conditions: stemmed primarily from now were considerably smaller than a year dealer bond inventories were considerably tighter, and earlier, credit conditions in general for securities other to be problems in markets there now were likely has been placed in the memorandum referred to 1/ A copy of the Committee's files.

than U.S. Government securities. No formal action by the Committee was required today, but the staff would take account of any comments on the memorandum that the members might have. No comments being heard, Chairman Martin suggested that the staff memorandum be kept on file for possible use in case of need. It was agreed that the next meeting of the Committee would be held on Tuesday, October 4, 1966, at 9:30 a.m. Thereupon the meeting adjourned. Secretary

ATTACHMENT A CONFIDENTIAL (FR) September 12, 1966 Drafts of Current Economic Policy Directive for Consideration by the Federal Open Market Committee at its Meeting on September 13, 1966 Alternative A (No further firming, with qualifications) The economic and financial developments reviewed at this meeting indicate that over-all domestic economic activity is expanding vigorously, despite the substantial weakening in residential construc tion, with inflationary pressures persisting. Aggregate credit demands continue strong and short-term financial markets remain under strain. The balance of payments continues to reflect a sizable underlying deficit. In this situation, and in light of the new fiscal program announced by the President, it is the Federal Open Market Committee's policy to help to counter inflationary pressures and restore reasonable equilibrium in the country's balance of payments, while accommodating moderate growth in the reserve base, bank credit, and the money supply. To implement this policy, and taking account of possible needs to moderate unusual liquidity pressures, System open market operations until the next meeting of the Committee shall be conducted with a view to maintaining about the current conditions in the money market; provided, however, that if bank credit expands substantially more than seasonally expected, operations shall be conducted with a view to seeking some further firming of money market conditions; and, if bank credit expands no more than seasonally expected, some easing of money market conditions shall be sought. Alternative B (Firming to extent feasible, with qualification) The economic and financial developments reviewed at this that over-all domestic economic activity is expanding meeting indicate vigorously, despite the substantial weakening in residential construc inflationary pressures persisting. Aggregate credit demands tion, with and short-term financial markets remain under strain. continue strong of payments continues to reflect a sizable underlying The balance In this situation, and in light of the new fiscal program deficit. by the President, it is the Federal Open Market Committee's announced policy to resist inflationary pressures and to strengthen efforts to equilibrium in the country's balance of payments, restore reasonable in the reserve base, bank credit, and the by restricting the growth money supply.

To implement this policy, System open market operations until the next meeting of the Committee shall be conducted with a view to supplying the minimum amount of reserves consistent with the main tenance of orderly money market conditions and the moderation of unusual liquidity pressures; provided, however, that if bank credit expands more rapidly than expected, operations shall be conducted with a view to seeking still greater reliance on borrowed reserves.