April 1, 1969 FOMC Record of Policy Actions

FOMC minutes

to take action on discount rates within a few of Governors planned days, and concurrently to consider the desirability of an increase in member bank reserve requirements, to be effective shortly after mid-April. The staff had prepared alternative projections of the adjusted proxy series that took account of other possible monetary policy action. These projections suggested that bank credit would be weaker than otherwise in April if open market operations were directed at maintaining the firmer money market conditions expected to ensue from such action and if existing Regulation Q ceilings were continued. It was the consensus of the Committee that some further monetary policy action was called for at this time in light of the greater-than-expected pace of the economic expansion and the continuation of pervasive inflationary pressures and expectations. An increase in discount rates was generally considered to be appropriate, but differing views were expressed regarding the desirability of an increase in reserve requirements at present. In one view both actions, along with supportive open market operations, were needed to make clear the System's determination to resist inflationary pressures. An alternative view was that, while an increase in reserve requirements might prove desirable at a later time, it was not required at present.

With respect to open market operations, a majority of the Committee agreed that such operations should be directed at main taining firm conditions in money and short-term credit markets, and at confirming the effects on those markets of any other monetary policy actions that might be taken. The proviso was added that operations should be modified if bank credit appeared to be deviating significantly from 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, while expansion in real economic activity has moderated somewhat further, current and prospective activity now appears stronger than earlier projections had indicated. Substantial upward pressures on prices and costs are persisting. Most long-term interest rates have risen further on balance in recent weeks, but movements in short-term rates have been mixed. In the first quarter of the year bank credit changed little on average, as investments contracted while loans expanded further. In March the outstanding volume of large-denomination CD's continued to decline sharply; inflows of other time and savings deposits were moderate; and growth in the money supply remained at a sharply reduced rate. It appears that a sizable deficit reemerged in the U.S. balance of payments on the liquidity basis in the first quarter but that the balance on the official settlements basis remained in surplus as a result of further large inflows of Euro dollars. 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 sustain able rate of economic growth and attaining reasonable equilibrium in the country's balance of payments.

System open market operations To implement this policy, meeting of the Committee shall be conducted until the next with a view to maintaining firm conditions in money and short-term credit markets, taking account of the effects of other possible monetary policy action; provided, however, that operations shall be modified if bank credit appears to be deviating significantly from current projections. Votes for this action: Messrs. Martin, Bopp, Brimmer, Clay, Daane, Mitchell, Robertson, Scanlon, Sherrill, and Treiber. Votes against this action: Messrs. Coldwell and Maisel. Absent and not voting: Mr. Hayes. (Mr. Treiber voted as his alternate.) Messrs. Coldwell and Maisel dissented from this action for different reasons. Mr. Coldwell noted that the directive favored by the majority could be interpreted as calling for no monetary firming unless the Board acted in the coming period with respect to discount rates or reserve requirements. Since he believed that greater monetary restraint was imperative under current circumstances, he favored adopt ing a directive that called unconditionally for the attainment of firmer conditions in money and short-term credit markets. Mr. Maisel believed that, insofar as the Committee's action reflected a desire to affect the prevailing inflationary psychology directly, it represented a shift from the Committee's proper concern with flows of credit and money to an improper target not readily sus ceptible to such influence. He particularly objected to the directive as adopted because he thought that operations under it were likely to depress flows of the monetary aggregates to rates below those that

seemed to him to be desirable and maintainable for a considerable period, and that such operations would thus be inconsistent with the gradualist approach to the ultimate objective of price stability that he favored.