October 4, 1966 FOMC Minutes

FOMC minutes

pressures" be replaced by other language. Inflationary pressures were continuing, whether they were of the demand-pull or cost push variety. He asked whether there were any objections to a directive formulated in the manner he had described. Mr. Solomon commented that citing "a sharp increase in business inventories" among the signs of weakness, as Mr. Mitchell had suggested, might mislead readers of the policy record if they were not aware that a good part of the increase was involuntary. It might be better to say "despite slower growth in final demand than in output." Mr. Mitchell said he would be willing to refer to an "involuntary" increase in inventories. Chairman Martin commented that if the phrase was likely it might be better to omit it. to be misleading that of the two signs of weakness for Mr. Partee observed references, he felt the Mitchell had proposed adding which Mr. than the uncertainties in increase was more significant inventory from the context it would be understood markets. He thought equity likely to have been inventory rise was considered that much of the of the policy record entry and, in any case, the text involuntary would make that point clear. for today's meeting undoubtedly prepared with Mr. Partee's observations. There was general agreement

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 over-all domestic economic activity is expanding vigorously, despite the substantial weakening in residential construction, uncertainties in equity markets, and a sharp increase in business inventories. Inflationary pressures are persisting and aggregate credit demands still remain strong. The balance of payments continues to show a sizable liquidity 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 resist inflationary pressures and to continue efforts to restore reasonable equilibrium in the country's balance of payments. To implement this policy, and taking account of forth coming Treasury financings, System open market operations until the next meeting of the Committee shall be conducted with a view to maintaining firm but orderly conditions in the money market; provided, however, that operations shall be modified in the light of unusual liquidity pressures or of any apparently significant deviations of bank credit from current expectations. meeting of the Committee would be It was agreed that the next held on Tuesday, November 1, 1966, at 9:30 a.m. Thereupon the meeting adjourned. Secretary

CONFIDENTIAL (FR) ATTACHMENT A October 3, 1966 Draft of Current Economic Policy Directive for Consideration by the Federal Open Market Committee at its Meeting on October 4, 1966 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. Inflationary pressures are persisting and aggregate credit demands remain strong. The balance of payments continues to show a sizable liquidity 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 resist inflationary pressures and to strengthen efforts to restore reasonable equilibrium in the country's balance of payments. To implement this policy, System open market operations until the next meeting of the Committee shall be conducted with a view to maintaining firm but orderly conditions in the money market; provided, however, that operations shall be modified in the light of unusual liquidity pressures or of any apparently significant deviations of bank credit from current expectations.

ATTACHMENT B SELECTED MEASURES OF MONETARY DEVELOPMENTS COMPOUNDED ANNUAL RATES OF CHANGE June 1965 June 1966 to to June 1966 September 1966 1/ Money Money Supply 5.8 % 1.4 % Demand Deposit Component 5.5 Currency Component 6.9 Time Deposits 12.8 Money Plus Time Deposits 9.0 Bank Reserves 2 / Reserves - Total + 3.9 2.1 Reserves Available for Private Demand Deposits* + 3.8 - 3.8 Federal Reserve Holdings of 2 / U.S. Government Securities* + 7.2 + 6.7 Interest Rates 4-to 6-Month Commercial Paper 25.8 + 30.6 3-Month Treasury Bills 18.4 +101.3 3-5 Year Governments 22.5 + 58.3 Long-Term Governments 11.8 + 13.6 Corporate Aaa Bonds 13.7 + 37.5 Municipal Aaa Bonds 14.3 + 39.2 25-Year FHA Mortgages 19.9 + .7a FHLB Average of Conventional First Mortgage Loans Including and Charges + 6.2 + .7a Fees figures are estimates. 1/ September to include effects of changes in reserve requirements 2/ Adjusted on time deposits. a June to August, partially estimated. * Seasonally adjusted by this Bank. Prepared by Federal Reserve Bank of St. Louis October 3, 1966