October 29, 1968 FOMC Record of Policy Actions

FOMC minutes

had accelerated further. In addition, banks increased their offering rates on large-denomination CD's slightly--by about the amount they had reduced them in September--and the volume of CD's outstanding rose considerably. Private demand deposits and the money supply were estimated to have increased fairly rapidly from September to Octoberthe money supply at an annual rate of about 7 per cent--after changing little on balance since the first week of July. Business loan demands at commercial banks were relatively strong in October, and banks continued to add to their holdings of substantial pace. Total bank credit, as municipal securities at a the bank credit proxy--daily-average member bank depositsmeasured by to have increased at an annual rate of about 12 per cent was estimated in October, compared with 9 per cent in September. Allowance for the daily average of U.S. bank liabilities to their foreign changes in branches would have reduced the October growth rate by about one-half and increased the rate for September by about 1.5 of a percentage point percentage points. operations in the period since the preceding System open market meeting of the Committee had initially been directed at maintaining about the prevailing conditions in the money and short-term credit markets. Later, however, some slight firming of conditions had been within the limitations imposed by the current Treasury refund permitted, ing, because estimates from time to time indicated that bank credit was expanding at a rate at or above the upper end of the projected range

some downward revision of the projection to allow for a smaller (after offering of tax-anticipation bills than had been assumed). Treasury had carried out relatively large operations, alternately The System absorbing and supplying reserves, to cope with sizable fluctuations in market factors affecting reserves and with pressures generated by continuing member bank adjustments to the new reserve computation procedures that had become effective on September 12. In recent weeks the effective rate on Federal funds had fluctuated mostly in a range of 5-3/4 to 6-1/8 per cent. Member bank borrowings averaged about $425 million in the 2 weeks ending October 23, down slightly from the average of $455 million in the preceding 4 weeks. Excess reserves declined more on the average, however, and net borrowed reserves increased. New staff projections suggested that, if prevailing conditions in money and short-term credit markets were maintained, the bank credit proxy would expand at an annual rate of 9 to 12 per cent in November and more slowly in December. The projections, which assumed that the Treasury would offer $2.5 billion of tax anticipation bills for payment in the last week of November, were subject to revision if the size or timing of the offering were different. It was expected that business loan demand would remain fairly strong in November, and that banks would continue to acquire municipal securities at a rapid pace. Prospects favored slower growth in the volume of large-denomination CD's outstanding and in

total time and savings deposits at commercial banks, but it appeared likely that the money supply would increase at a rate equal to or slightly above that estimaLed for October. The Committee agreed that the current Treasury refunding precluded a change in monetary policy at this time. Some members indicated that in the absence of the Treasury financing they would have favored seeking somewhat firmer money market conditions, on the grounds that recent and prospective rates of bank credit growth were excessive in light of prevailing inflationary pressures. Some other members expressed the view that an increase in monetary restraint was not warranted at present even apart from the financing. While recognizing the uncertainties in the outlook, they believed the most likely prospect at the moment was that the economic advance would slow sufficiently under the current stance of stabilization policies. The Committee concluded that open market operations should be directed at maintaining about the prevailing conditions in money and short-term credit markets, with the proviso that operations should be modified, insofar as the Treasury financing permitted, if bank credit growth appeared to be in excess of current projections. The following current economic policy directive was issued to the Federal Reserve Bank of New York:

The information reviewed at this meeting suggests that over-all economic expansion has moderated somewhat from its very rapid pace earlier in the year, although less than projected, and that upward pressures on prices and costs are persisting. Market interest rates have risen in recent weeks. Bank credit and time and savings deposits have continued to expand rapidly, but savings inflows to thrift institutions have remained moderate. The money supply, after growing little on balance during the summer, has increased in recent weeks. The U.S. 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, while taking account of the current Treasury financing, 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 Treasury financing, if bank credit expansion appears to be exceeding current projections. Votes for this action: Messrs. Martin, Brimmer, Daane, Galusha, Hickman, Kimbrel, Maisel, Mitchell, Morris, Robertson, and Sherrill. Vote against this action: Mr. Hayes. In dissenting from this action, Mr. Hayes said he agreed that the current Treasury refunding precluded any substantial change in monetary policy. He thought, however, that the implications of the prevailing inflationary pressures for the domestic economy and the balance of payments were sufficiently serious to warrant seeking whatever degree of firming in money market conditions would be consistent with the Treasury financing--however slight that might be--in an effort to slow bank credit growth from a rate he considered excessive.