April 30, 1968 FOMC Record of Policy Actions

FOMC minutes

difference between the amount of new cash the Treasury actually raised in connection with the May refunding and the amount assumed in the projection. The following current economic policy directive was issued to the Federal Reserve Bank of New York: The information reviewed at this meeting indicates that over-all economic activity has expanded at a very rapid pace in 1968, with prices rising substantially, and that thus far rapid advance in activity and prospects are for a continuing persisting inflationary pressures in the period ahead. Since late fall, growth rates of bank credit, the money supply, and time and savings accounts at financial institutions have on balance moderated considerably. Market interest rates have risen in recent weeks, partly in reaction to the firming of monetary policy including the further increase in Federal Reserve discount rates. The U.S. foreign trade balance has worsened further, and the international payments position of the United States continues to be a matter of serious concern. In this situation, it is the policy of the Federal Open Market Committee to foster financial conditions conducive to resistance of inflationary pressures and attainment of reason able equilibrium in the country's balance of payments. To implement this policy, while taking account of Treasury financing activity, System open market operations until the next meeting of the Committee shall be conducted with a view to maintaining the firmer conditions prevailing in the money market; provided, however, that operations shall be modified, to the extent permitted by Treasury financing, if bank credit appears to be deviating significantly from current projections. Votes for this action: Messrs. Martin, Hayes, Brimmer, Daane, Ellis, Galusha, Kimbrel, Maisel, Robertson, and Sherrill. Vote against this action: Mr. Hickman. Absent and not voting: Mr. Mitchell. In dissenting from this action, Mr. Hickman expressed the view that the recent upward adjustment of interest rates had been

under the policy directive the Committee had less than contemplated issued at its April 19 meeting, and less than was desirable in view of the inflationary pressures in the economy. He agreed that the prospective Treasury financing precluded substantial firming of money market conditions before the Committee's next meeting. Never theless, he thought that firmer conditions should be sought, if and when feasible after the Treasury financing had been completed, on the understanding that the stance of monetary policy would be reexamined should fiscal action be taken. to authorization for System foreign currency operations. 2. Amendment amended paragraph 1B(3) of the authorization The Committee foreign currency operations to increase, from $200 million for System to $250 million, the limit on authorized System Account holdings of sterling purchased on a covered or guaranteed basis. With this amendment, the first paragraph of the authorization read as follows: Federal Open Market Committee authorizes and 1. The directs the Federal Reserve Bank of New York, for System Open Market Account, to the extent necessary to carry out the Committee's foreign currency directive: purchase and sell the following foreign A. To currencies in the form of cable transfers through spot or forward transactions on the open market at home and abroad, including transactions with the U.S. Stabilization by Section 10 of the Gold Reserve Act of Fund established 1934, with foreign monetary authorities, and with the Bank for International Settlements:

Austrian schillings Belgian francs Canadian dollars Danish kroner Pounds sterling French francs German marks Italian lire Japanese yen Mexican pesos Netherlands guilders Norwegian kroner Swedish kronor Swiss francs listed in paragraph A B. To hold foreign currencies above, up to the following limits: held spot or purchased forward, (1) Currencies amounts necessary to fulfill outstanding forward up to the commitments; held spot or purchased (2) Additional currencies forward, up to the amount necessary for System operations to but not exceeding $150 million equiv exert a market influence alent; and purchased on a covered or (3) Sterling guaranteed basis in terms of the dollar, under agreement with the Bank of England, up to $250 million equivalent. C. To have outstanding forward commitments undertaken under paragraph A above to deliver foreign currencies, up to the following limits: (1) Commitments to deliver foreign currencies to the Stabilization Fund, up to $350 million equivalent; (2) Commitments to deliver Italian lire, under special arrangements with the Bank of Italy, up to $500 million equivalent; and (3) Other forward commitments to deliver foreign currencies, up to $550 million equivalent.

D. To draw foreign currencies and to permit foreign banks to draw dollars under the reciprocal currency arrangements listed in paragraph 2 below, provided that drawings by either party to any such arrangement shall be fully liquidated within 12 months after any amount outstanding at that time was first drawn, unless the Committee, because of exceptional circumstances, specifically authorizes a delay. Votes for this action: Messrs. Martin, Hayes, Hickman, Brimmer, Daane, Ellis, Galusha, Kimbrel, Maisel, Robertson, and Sherrill. Votes against this action: None. Absent and not voting: Mr. Mitchell. This action was taken on grounds that it would be helpful in connection with discussions of specific arrangements, including a drawing by Britain on its $1.4 billion standby facility with the International Monetary Fund, for repayment by the Bank of England of outstanding drawings under its swap line with the Federal Reserve. It was understood that initial use of the enlarged authority would be subject to the approval of Chairman Martin in light of developments in those discussions.