July 18, 1967 FOMC Record of Policy Actions

FOMC minutes

that omission of the reference to them from the directive did not preclude such operations under appropriate circumstances. Members of the minority noted that the heavy calendar of prospective corporate issues could result in renewed upward pres sures on long-term yields, with possibly adverse effects on mortgage markets. They expressed the view that recent operations in coupon issues had had some moderating effect on long-term rates by affecting both market supplies and expectations of market par ticipants, and that such operations could continue to serve a constructive purpose in dealing selectively with capital market pressures. Mr. Maisel thought that there remained a broad demand in the economy, and that helping to meet that demand for liquidity of coupon issues represented an appropriate System by purchases portfolio policy. that appropriate circumstances for Mr. Brimmer observed might not arise in the coming period, and along coupon operations he agreed that omission of the with Messrs. Maisel and Mitchell reference from the directive would not preclude them if the need these members felt that the reference should arose. Nevertheless, the present directive to clarify the Committee's be retained in intent. voted to issue the following current The Committee then Reserve Bank of New York: policy directive to the Federal economic

economic and financial developments reviewed The at this meeting indicate that economic activity has been rising modestly and that prospects are for further expansion. Output is still being retarded by adjust ments of excessive inventories, but growth in final demands continues strong, reflecting some strengthening in consumer expenditures for durable goods and housing, and also further increases in Government outlays. The over-all indexes of both wholesale and retail prices have risen further, although wholesale prices of indus trial commodities have remained stable. Bank credit expansion has been large in recent weeks. Most short and long-term interest rates, after reaching advanced levels under the influence of heavy public and private securities market financing, have declined somewhat recently. The balance of payments deficit has remained substantial despite some improvement in the foreign trade surplus. In this situation, it is the Federal Open Market Committee's policy to foster money and credit conditions, including bank credit growth, con ducive to continuing economic expansion, while recogniz ing the need for reasonable price stability for both domestic and balance of payments purposes. To implement this policy, while taking account of forthcoming Treasury financing activity, System open market operations until the next meeting of the Commit tee shall be conducted with a view to maintaining about the prevailing conditions in the money market; but operations shall be modified insofar as the Treasury financing permits to moderate any apparent tendency for bank credit and money to expand more than currently expected. Votes for this action: Messrs. Hayes, Brimmer, Maisel, Mitchell, Robertson, Scanlon, Sherrill, Swan, Wayne, and Patterson. Votes against this action: None. 2. Amendments to authorization for System foreign currency operations. At this meeting the Committee ratified an action taken by members on June 29, 1967, effective June 30, 1967, amending paragraph 2 of the Committee's authorization for System foreign currency

operations to change the maximum period authorized for the reciprocal currency (swap) arrangement with the Netherlands Bank from 3 to 6 months. Votes for ratification of this action: Messrs. Hayes, Brimmer, Maisel, Mitchell, Robertson, Scanlon, Sherrill, Swan, Wayne, and Patterson. Votes against ratification of this action: None. Subsequently in the course of the meeting the Committee amended paragraph 2 of the authorization in certain other respects. In the text of the paragraph the phrase "for periods up to a maximum of 12 months" was added following the direction to the Federal Reserve Bank of New York to maintain swap arrangements with indicated foreign banks; and the column in the table contained in the paragraph that specified a maximum maturity for each of the existing arrangements--12 months in 10 cases and 3 or 6 months in the others--was deleted. These changes, which were in line with the Committee's interest in moving toward 12-month maturities for swap arrangements where agreeable with the foreign bank con eliminated the necessity for amending the authorization cerned, each time the maturity of an arrangement was changed. In addition, the paragraph was amended to reflect approval of increases (a) from $200 million to $250 million in the swap the Swiss National Bank, (b) from $200 million to arrangement with $250 million in the arrangement with the Bank for International Settlements covering System drawings in Swiss francs, and (c) from

$200 million to $300 million in the arrangement with the Bank for International Settlements covering System drawings in authorized European currencies other than Swiss francs. These increases were considered desirable to provide broader margins of safety to deal with unforeseeable contingencies. Votes for these actions: Messrs. Hayes, Brimmer, Maisel, Mitchell, Robertson, Scanlon, Sherrill, Swan, Wayne, and Patterson. Votes against these actions: None. paragraph 2 of the authorization Reflecting these amendments, foreign currency operations read as follows: for System directs the Federal Federal Open Market Committee The to maintain reciprocal currency Reserve Bank of New York for System Open Market arrangements ("swap" arrangements) of 12 months with the for periods up to a maximum Account are among those designated foreign banks, which following the Federal Reserve System Board of Governors of by the of Regulation N, Relations with under Section 214.5 approval of the and with the Banks and Bankers, Foreign such arrangements on maturity: Committee to renew Amount of arrangement (millions of dollars equivalent) Foreign bank National Bank Austrian National Bank of Belgium Bank of Canada Bank of Denmark National 1,350 Bank of England Bank of France Federal Bank German Bank of Italy Bank of Japan Bank of Mexico Netherlands Bank Bank of Norway Bank of Sweden National Bank Swiss for International Settlements Bank in Swiss francs System drawings System drawings in authorized European francs 300 other than Swiss currencies