October 8, 1968 FOMC Record of Policy Actions

FOMC minutes

were about unchangedof Treasury securities further, their holdings when banks had been heavy to the two preceding months in contrast Treasury financings. Total bank buyers of securities offered in proxy--daily-average member as measured by the bank credit credit, of about 9 per cent in September, deposits--rose at an annual rate bank in August. Allowance for a rate of more than 21 per cent compared with of U.S. bank liabilities to foreign changes in the daily average to increase the growth rate by about 1.5 branches would have served and 0.5 of a percentage point in August. percentage points in September expected to accelerate somewhat in Bank credit growth was as a result of the anticipated cash financing by the Treasury. October projections suggested that the bank credit proxy The latest staff rate of 10 to 13 per cent if the conditions would expand at an annual markets that had prevailed on the in money and short-term credit average since the Committee's preceding meeting were maintained. Treasury would offer $3.5 billion of This projection assumed that the bills for payment in the latter part of the month tax-anticipation banks initially would acquire the bulk of the and that commercial Slower growth of bank credit was projected for November, offering. when the Treasury was not expected to raise new cash. The October in the rate of expansion in time projection allowed for some moderation and for little growth in private demand deposits. and savings deposits in the money supply, reflecting mainly an expansion A small increase in currency, was anticipated.

The Committee was divided in its views on the appropriate course for monetary policy under current circumstances, with a majority favoring no change and a minority advocating at least a slight increase in monetary restraint. The majority was opposed to greater restraint at present primarily because it continued to expect the rate of expansion of consumer spending and of economic activity in general to slow down as the effects of the recent fiscal restraint measures were increasingly felt. The fact that the Treasury would be undertaking a major refunding operation before the Committee's next meeting also was cited as a consideration militating against a change in policy at this time. concluded that open market operations should be The Committee directed at maintaining the conditions in money and short-term credit markets that had prevailed on the average in the period since the preceding meeting, on the understanding that operations would not be undertaken to offset any moderate upward pressures on Treasury bill rates that might develop. The proviso was added that operations should be modified, insofar as the forthcoming Treasury refunding permitted, if the rate of bank credit expansion appeared to be significantly in excess of current projections. current economic policy directive was issued to The following the Federal Reserve Bank of New York: The information reviewed at this meeting suggests that over-all economic expansion has moderated, although less than its very rapid pace earlier in the year, but projected, from upward pressures on prices and costs are persisting. Most market interest rates have changed little on balance in recent

weeks. Bank credit and time and savings deposits expanded rapidly this summer, but the money supply has shown no net growth since July after rising substantially for several months. The earlier improvement in the U.S. balance of payments was not maintained in August and September, accord ing to preliminary indications, and the foreign trade balance and underlying payments position continue to be matters of serious concern. In this situation, it is the policy of the Federal Open Market Committee to foster financial conditions conducive to sustainable economic growth, continued resistance to inflationary pressures, and attainment of reasonable equilibrium in the country's balance of payments. To implement this policy, System open market operations until the next meeting of the Committee shall be conducted with a view to maintaining about the prevailing conditions in money and short-term credit markets; provided, however, that operations shall be modified, to the extent permitted by the forthcoming Treasury refunding operation, if bank credit expansion appears to be significantly exceeding current projections. Votes for this action: Messrs. Martin, Brimmer, Daane, Galusha, Maisel, Mitchell, Morris, Robertson, and Sherrill. Votes against this action: Messrs. Hayes, Hickman, and Kimbrel. Messrs. Hayes, Hickman, and Kimbrel dissented from this action because they thought that the rates of bank credit growth recorded in recent months and the rate projected for October were excessive, particularly in light of the persisting inflationary pressures and the unexpected strength in the economy. Accordingly, they favored seeking money market conditions somewhat firmer than those advocated by the majority, to the extent the Treasury refunding operation permitted.

Amendment to authorization for System foreign currency operations. meeting on March 14, 1968, the Committee had authorized At its undertake negotiations looking toward increases, the Special Manager to specified limits, in a number of the System's reciprocal currency up to arrangements, on the understanding that any such enlargements--and the to paragraph 2 of the authorization for System corresponding amendments currency operations--would become effective upon a determination foreign in the national interest. As indicated Martin that they were by Chairman policy record for March 14, the Chairman had made the indicated in the determination for certain of these arrangements on March 17. Among the arrangements covered by the Committee's action of March 14 was that with the Bank of Italy, for which negotiations looking toward an increase of up to $250 million equivalent had been authorized. Recently these negotiations had been successfully completed, and on the day of this meeting Chairman Martin determined that an increase in the swap arrangement with the Bank of Italy from $750 million to $1 billion equivalent was in the national interest. Accordingly, the corresponding amendment to paragraph 2 of the authorization for System foreign currency operations became effective on October 8, 1968.