April 4, 1967 FOMC Minutes

FOMC minutes

course of today's discussion, he had not detected much evidence that they felt strongly. On the other hand, at least one President had indicated that he had favored a 4-1/4 per cent rate earlier but now preferred a 4 per cent rate. He personally would hope that the Reserve Banks would think carefully about the possible disadvantages of announcing a split discount rate in the existing environment. Messrs. Mitchell and Hickman indicated that they also thought it was important to have a uniform discount rate. Chairman Martin agreed that it might be best if all Reserve Banks moved to a 4 per cent rate. But to make that statement was not the same thing as insisting on uniformity, which he was not inclined to do,, that he would prefer to have the Board defer Mr. Ellis said per cent rate established last action with respect to the 4-1/4 Boston Reserve Bank until the directors week by the directors of the consider the matter further. could meet again and Wayne, Chairman Martin said to a question by Mr. In response for all Banks to move not consider it necessary that he would timing was that if three, present thinking on together. The Board's rates by Thursday had established new discount four, or five Banks and plan on acting would approve those changes, of this week it by other established subsequently to new rates promptly with respect any action on discount Board would not take In any case, the Banks.

rates before Thursday. In that connection, it was important that the discussion of discount rates at today's meeting be held in confidence until the action was announced. Mr. Robertson then reported that the "eligible paper" bill, which would permit member banks to borrow from the Reserve Banks on any sound asset without paying a penalty rate of interest, probably would be passed by the Senate shortly and then would be taken up by the House of Representatives. One of the first ques tions likely to be raised in the House was whether the System was prepared to deal with the wide range of collateral that would be eligible under the bill; it had been suggested that System personnel might be relatively inexperienced in appraising mortgages, municipal securities, and the like. Consequently, it seemed desirable for the System to launch a program to provide any necessary training for its personnel. He would suggest setting up an ad hoc committee with Reserve Bank and Board representation to assess existing train program for dealing with them. If the ing needs and to develop a Board members thought such a course Reserve Bank Presidents and would be worthwhile, initiating actions could be taken immediately. that the Presidents' Conference Committee Mr. Hayes noted had an interest in this area and would be on Discounts and Credits program such as Mr. Robertson had glad to work on implementing a suggested.

No objection was raised to instituting a program of the type Mr. Robertson had proposed. Chairman Martin then noted that the Committee had planned to continue its discussion today of the implications of the "Freedom of Information Act" for the Committee's procedures. In that connection, memoranda from the General Counsel and the Secretariat, making certain recommendations, had been distributed on March 29, 1967.1/ In view of the lateness of the hour, however, he suggested that the planned discussion be postponed until the next meeting. There was no disagreement with the Chairman's suggestion. It was agreed the next meeting of the Federal Open Market Committee would be held on Tuesday, May 2, 1967, at 9:30 a.m. Thereupon the meeting adjourned. Secretary 1/ Copies of these memoranda have been placed in the Committee's files.

ATTACHMENT A CONFIDENTIAL (FR) April 3, 1967 Drafts of Current Economic Policy Directive for Consideration by the Federal Open Market Committee at its Meeting on April 4, 1967 FIRST PARAGRAPH The economic and financial developments reviewed at this meeting support earlier indications of a marked slowing of expansion in over-all economic activity. Retail sales have continued sluggish and curtailment in the rate of business inventory accumulation is in process. Average commodity prices have changed little recently, but unit labor costs in manufacturing have risen further. Bank credit expansion has remained vigorous, short-term interest rates have declined markedly further, and long-term rates have moved down some what despite very heavy securities market flotations. Recently there has been some improvement in the foreign trade surplus but none in the over-all balance of payments. In several important countries abroad, monetary and fiscal policies have eased further in response to slackened economic activity. In this situation, it is the Federal Open Market Committee's policy to foster money and credit conditions, growth, conducive to combatting the effects of including bank credit weakening tendencies in the economy, while recognizing the need for reasonable equilibrium in the country's balance of progress toward payments. SECOND PARAGRAPH Alternative A To implement this policy, System open market operations meeting of the Committee shall be conducted with a until the next conditions in the money the prevailing easier view to maintaining modified as necessary to moderate but operations shall be market, of bank credit from current apparently significant deviations any expectations. Alternative B System open market operations To implement this policy, be conducted with a of the Committee shall until the next meeting in the money market, somewhat easier conditions view to attaining credit appears to conditions if bank attaining still easier and to than currently anticipated. significantly less be expanding