December 13, 1966 FOMC Minutes

FOMC minutes

all banks. If the operation was to be terminated, he would let each President do what he thought necessary, either through conversation or written communication as he believed best, so long as equal treatment was assured for all banks. Mr. Maisel also spoke in favor of a uniform approach. He agreed that the timing could be delayed and was not concerned with the form of statement. He did feel, however, that the policy should be terminated by an official and public action of the System. Mr. Wayne then suggested that everyone think about the problem, with a view to further discussion at the next Committee meeting, and there was general agreement with that suggestion. Returning to the question of the directive, Chairman Martin suggested that the Secretary poll the Committee on alternative B in the form drafted by the staff. Question was raised whether the vote should be taken instead on alternative B as it would read with the change suggested by Messrs. Mitchell and Maisel, and upon request read the language reflecting that suggestion. Mr. Clay the Secretary that he would prefer to have the vote taken on alternative commented by the staff because in his opinion there was a virtue B as written along the line of the policy instituted at the preced in continuing ing meeting. Martin observed that the problem seemed to get Chairman into semantics to a certain degree. As he had said many times,

words meant different things to different people. He happened to prefer alternative B as written by the staff because he found it easier to understand. It specified operations with a view to attaining somewhat easier conditions in the money market. He doubted whether bank credit would resume a rapid rate of expan sion at this stage, but if it should the directive also made provision for that contingency. He again proposed voting on alternative B as prepared by the staff. That procedure, he felt, should afford a fair opportunity for expression of opinion because those members who opposed the staff draft no doubt would also oppose the suggested revision of it. Thereupon, upon motion duly made and seconded, and with Messrs. Hayes, Daane, Irons, and Shepardson dissenting, 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 continuing to expand, with rising defense expenditures but with additional evidences of moderating tendencies in the private economy. While there has been some slowing in the pace of advance of most broad price measures, upward price pressures persist for many finished goods and services. Bank credit and money have shown no net expansion in recent months. Although demands on bond markets have increased, upward pressures on long-term rates have moderated. The balance of payments interest remains a serious problem. In this situation, it is the

Committee's policy to foster money Federal Open Market and credit conditions conducive to noninflationary and progress toward reasonable equili economic expansion brium in the country's balance of payments. To implement this policy, System open market opera next meeting of the Committee shall be tions until the conducted with a view to attaining somewhat easier conditions in the money market, unless bank credit appears to be resuming a rapid rate of expansion. the next meeting of the Committee would be held It was agreed on Tuesday, January 10, 1967, at 9:30 a.m. Thereupon the meeting adjourned. Secretary

ATTACHMENT A CONFIDENTIAL (FR) December 12, Drafts of Current Economic Policy Directive for Consideration by the Federal Open Market Committee at its Meeting on December 13, 1966 FIRST PARAGRAPH The economic and financial developments reviewed at this meeting indicate that over-all domestic economic activity is contin uing to expand, with rising defense expenditures but with additional evidences of moderating tendencies in the private economy. While there has been some slowing in the pace of advance of most broad price measures, upward price pressures persist for many finished goods and services. Bank credit and money have shown no net expansion in recent months. Although demands on bond markets have increased, upward pressures on long-term interest rates have moderated. The balance of payments remains a serious problem. In this situation, it is the Federal Open Market Committee's policy to foster money and credit conditions conducive to noninflationary economic expansion and progress toward reasonable equilibrium in the country's balance of payments. SECOND PARAGRAPH Alternative A To implement this policy, and taking into account the widely fluctuating seasonal pressures at this time of year, System open market operations until the next meeting of the Committee shall be conducted with a view to maintaining about the currently prevailing money market conditions; provided, however, that somewhat easier conditions shall be sought if bank credit appears to be failing to expand. Alternative B To implement this policy, System open market operations until the Committee shall be conducted with a view to the next meeting of easier conditions in the money market, unless bank attaining somewhat credit appears to be resuming a rapid rate of expansion.