February 4, 1969 FOMC Record of Policy Actions

FOMC minutes

date, and total time and savings deposits declined at an annual rate of about 10.5 per cent from December to January. Expansion in private demand deposits and the money stock moderated--the latter to an annual rate of about 4.5 per cent from 7.5 per cent in the previous month--as U.S. Government deposits rose. Business loans at banks increased markedly in January. However, other loans declined slightly, net acquisitions of municipal securities remained at a reduced rate, and holdings of Treasury securities declined considerably. Total bank credit, as measured by the proxy series--daily-average member bank deposits--was estimated to have declined at an annual rate of 4.5 per cent from December to January, compared with growth at about a 13 per cent rate in the previous month and also over the second half of 1968 as a whole. After adjustment for changes in the daily average of U.S. bank liabilities to foreign branches--which, as noted earlier, increased substantially in January--the proxy series declined at an annual rate of about 1.5 per cent. Some slowing of the growth of business loans from the rapid was expected in February. Staff projections suggested January pace that if existing Regulation Q ceilings and prevailing money market conditions were maintained the run-off of CD's outstanding would continue at a rapid rate--although not so rapid as in January, it appeared that the volume of CD's maturing would mainly because of other time and month--and that inflows smaller than in that be

savings deposits would improve only moderately from January. The projections for February implied that U.S. Government deposits would rise substantially further and that private demand deposits and the money stock would decline somewhat. The bank credit proxy was pro jected to decline from January to February at an annual rate of 3 to 6 per cent. After adjustment for the increase in U.S. bank liabil ities to foreign branches that had occurred over the course of January, the decline in the proxy series was projected to fall in a range of zero to 3 per cent. The Committee agreed that current and prospective economic conditions did not call for a change in monetary policy at this time, and that in any case the Treasury refunding now under way militated against a change in policy. Some members, noting the decline in the bank credit proxy experienced in January and the small further decline expressed concern about the risk that the projected for February, of policy might have unduly restrictive consequences current stance shortly. While others thought that and thus might have to be reversed bank credit developments were not unduly restrictive, partic current expansion in the latter part of 1968, ularly in light of the rapid was general agreement that a resumption of bank credit growth, there a moderate rate, would be desirable before long. although at that open market operations should be The Committee decided prevailing firm conditions in money and directed at maintaining the

short-term credit markets. The proviso was added that operations should be modified, to the extent permitted by the Treasury refund ing, if bank credit appeared to be deviating significantly from projections. It was suggested that the allowable deviation current in bank credit before the proviso was to be implemented should be smaller if the deviation were in a downward direction than in the opposite case. It also was suggested that, if the proviso clause were implemented in the direction of less firm money market conditions, care should be taken to avoid giving misleading signals about the basic stance of monetary policy. The following current economic policy directive was issued to the Federal Reserve Bank of New York: The information reviewed at this meeting suggests that expansion in real economic activity has been moderating, but that upward pressures on prices and costs are persisting. Prospects are for some further slowing in economic expansion in the period ahead. Market interest rates recently have fluctuated near the highs reached around the turn of the year. Bank credit contracted slightly in January on average, as the outstanding volume of large-denomination CD's continued to decline sharply, inflows of other time and savings deposits slowed, and growth in the money supply moderated. The U.S. balance of payments on the liquidity basis appears to have reverted to deficit in early 1969, but large inflows of Euro dollars have had the effect of keeping the official settlements balance in surplus. In this situation, it is the policy of the Federal Open Market Committee to foster financial conditions conducive to the reduction of inflationary pressures, with a view to encouraging a more sustainable rate of economic growth and attaining reasonable equilibrium in the country's balance of payments.

To implement this policy, while taking account of the current Treasury refunding, System open market oper ations until the next meeting of the Committee shall be conducted with a view to maintaining the prevailing firm conditions in money and short-term credit markets; provided, however, that operations shall be modified, to the extent permitted by the Treasury refunding, if bank credit appears to be deviating significantly from current projections. Votes for this action: Messrs. Martin, Hayes, Brimmer, Daane, Galusha, Kimbrel, Maisel, Mitchell, Morris, Hickman, Robertson, and Sherrill. Votes against this action: None.