March 5, 1968 FOMC Record of Policy Actions

FOMC minutes

In the course of the discussion a number of members expressed the view that a discount rate increase should be considered by the System soon. At the same time, it was noted that action under the Board's Regulation Q to increase the ceil CD's might be needed at some point ing rate on large-denomination large reduction in the outstanding volume to avoid an undesirably of such CD's. current economic policy directive was The following issued to the Federal Reserve Bank of New York: The information reviewed at this meeting indicates that over-all economic activity has been expanding rapidly, with both industrial and consumer prices rising at a substantial rate, and that prospects are for continu ing rapid growth and persisting inflationary pressures in the period ahead. The foreign trade surplus has been at a sharply reduced level in recent months and the imbalance in U.S. international payments remains serious. Interest rates on most types of market instruments have edged up recently, following earlier declines. While growth in bank credit has moderated on balance during the past three months, bank credit expansion has been substantial in mainly reflecting Treasury financings. Growth February, in the money supply slowed in February, while flows into bank time and savings accounts expanded moderately. In this situation, it is the policy of the Federal Open Market Committee to foster financial conditions conducive of inflationary pressures and progress toward to resistance equilibrium in the country's balance of payments. reasonable this policy, System open market operations To implement until the next meeting of the Committee shall be conducted with a view to attaining somewhat firmer conditions in the money market; provided, however, that operations shall be further modified if bank credit appears to be expanding more rapidly than is currently projected.

Votes for this action: Messrs. Martin, Hayes, Brimmer, Ellis, Galusha, Hickman, Kimbrel, Maisel, Mitchell, Robertson, and Sherrill. Votes against this action: None. Absent and not voting: Mr. Daane. 2. Amendment of authorization for System foreign currency operations. The Committee amended paragraph 3 of the authorization for System foreign currency operations in two respects. The phrase "Unless otherwise expressly authorized by the Committee" was added at the beginning of the first sentence of the paragraph, before language specifying that all foreign currency transactions should be at prevailing market rates. Such a qualification had been included at the corresponding point in the Committee's original authorization regarding foreign currency transactions adopted in February 1962, and had been inadvertently omitted when the previous instruments governing foreign currency operations were reformulated in June 1966. The effect of restoring the qualification was to simplify procedures in the event the Committee concluded that because of special circumstances a particular transaction should be undertaken at a rate different from that prevailing in the market. At the same time, the second sentence of the paragraph, which had read as follows, was deleted:

foreign currencies shall Insofar as is practicable, through spot transactions when rates for be purchased at or below par and sold through those currencies are when such rates are at or above par, spot transactions except when transactions at other rates (i) are specif ically authorized by the Committee, (ii) are necessary to acquire currencies to meet System commitments, or (iii) are necessary to acquire currencies for the Stabilization Fund, provided that these currencies are resold forward to the Stabilization Fund at the same rate. of foreign currencies at prices Restrictions on spot sales and on spot purchases at prices above par had been included below par in the Committee's foreign currency instruments since their original adoption in February 1962. The Committee now concluded that such restrictions were unnecessary, in light of the limitations on the for which foreign currency operations could be undertaken purposes given in paragraph 2 of the Committee's foreign currency directive. The restrictions also were considered undesirable on the grounds that spot sales of foreign currencies at prices below par and spot purchases at prices above par might be useful, on occasion, in furthering the purposes specified in the directive. As amended, paragraph 3 of the authorization for System foreign currency operations read as follows: Unless otherwise expressly authorized by the Committee, all transactions in foreign currencies undertaken under paragraph 1(A) above shall be at prevailing market rates and no attempt shall be made to establish rates that appear to be out of line with underlying market forces. Except for the changes resulting from these amendments, the Committee renewed the authorization in its existing form.

Votes for this action: Messrs. Martin, Hayes, Brimmer, Ellis, Galusha, Hickman, Kimbrel, Maisel, Mitchell, Robertson, and Sherrill. Votes against this action: None. Absent and not voting: Mr. Daane. 3. Review of continuing authorizations. This being the first meeting of the Federal Open Market Committee following the election of new members from the Federal Reserve Banks to serve for the year beginning March 1, 1968, and their assumption of duties, the Committee followed its customary practice of reviewing all of its continuing authorizations and directives. The action taken with respect to the authorization for System foreign currency operations has been described in the preceding portion of the record for this date. The Committee reaffirmed its continuing authority directive for domestic open market operations and its foreign currency directive in the forms in which both were outstanding at the beginning of the year Votes for these actions: Messrs. Martin, Hayes, Brimmer, Ellis, Galusha, Hickman, Kimbrel, Maisel, Mitchell, Robertson, and Sherrill. Votes against these actions: None. Absent and not voting: Mr. Daane.