April 29, 1969 FOMC Record of Policy Actions

FOMC minutes

firmness as the period progressed, when it became increasingly clear that bank credit was expanding at a pace significantly in excess of the range projected at the time of the previous meeting. The effective rate on Federal funds, which had fluctuated around 6-3/4 per cent in March, rose to the 7-3/4 to 7-7/8 per cent area in mid April and again late in the month. Member bank borrowings averaged slightly more than $1 billion in the 4 weeks ending April 23, com pared with an average of about $835 million in the previous 4 weeks. Net borrowed reserves increased somewhat more than borrowings, as excess reserves declined further on the average. Most short-term interest rates had risen following the announcement on April 3 of the increases in discount rates and member bank reserve requirements. Market rates on Treasury bills maturing within 6 months continued under upward pressure through the mid month tax date--reflecting sizable sales by banks and higher dealer financing costs--but they receded from their peaks after mid-April under the influence of strong seasonal demands. The market rate on 3-month Treasury bills, for example, reached a high of 6.22 per cent on April 16, but by the day before this meeting it had declined to 6.00 per cent, about the same as 4 weeks earlier. Rates on most other short-term instruments advanced during the month, in many instances to new highs.

rates had moved down in recent weeks, Long-term interest of progress in the Vietnam peace negotiations and indica as rumors tions of increasingly restrictive fiscal and monetary policies expectations that inflationary pressures would be fostered growing contained. A large volume of new corporate and municipal bonds was marketed during April, including a number of issues that had been postponed earlier. Bond yields leveled out late in the month, and of expectations that partly as a consequence of these offerings a new intermediate-term issue would be included in the Treasury's forthcoming refunding. Business loan demands at banks, which had been enlarged in April by needs to finance tax payments, were expected to moderate in May. Staff projections suggested that the adjusted bank credit proxy would decline at an annual rate of 2 to 5 per cent from April to May if prevailing conditions were maintained in money and short term credit markets. It appeared likely that the run-off of outstanding CD's would continue and that consumer-type time and savings deposits would expand at a low rate. Private demand deposits and the money stock were projected to decline slightly on the average from April to May, and a reduction also was anticipated in U.S. Government deposits. In the Committee's discussion a number of members expressed the view that it would be desirable at present to maintain at least

the existing degree of monetary restraint in light of the persistence of strong inflationary pressures, and some question was raised as to whether restraint was being pursued with sufficient vigor. At the same time, recognition was given to the likelihood that the combined restrictive effects of current fiscal and monetary policies would become visible in economic developments later in the year, and the view was advanced that such a prospect argued against a further intensification of monetary restraint now. The Committee agreed that in any event the forthcoming Treasury refunding militated against a change in monetary policy at this time. It decided that open market operations should be directed at maintaining the firmer conditions in money and short-term credit markets that had been achieved, with the proviso that operations should be modified, insofar as the Treasury financing permitted, if bank credit appeared to be deviating significantly from current projections. Some members suggested that any doubts arising in the conduct of operations should be resolved on the side of restraint. In addition, concern was voiced about the unexpectedly large increases now estimated for April in both bank credit and the money stock. While it was the consensus of the members that those increases probably reflected temporary factors to an important extent, the view was expressed that the proviso clause should be implemented quite promptly if bank credit developments in May suggested the contrary.

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 moderated only slightly since the fourth quarter of 1968. At the same time, substantial upward pressures on prices and costs are persisting. Long-term interest rates have generally declined in recent weeks, but most short term rates have risen somewhat. In the first quarter of the year bank credit changed little on average and the money supply grew at a sharply reduced rate. In early April both measures increased substantially, influenced in part by large tax-date borrowing and deposit bulges around Easter. The outstanding volume of large-denom ination CD's has continued to decline and there was a net outflow of consumer-type time and savings deposits from banks and other thrift institutions in the first half of April. A sizable deficit re-emerged in the U.S. balance of payments on the liquidity basis in the first quarter but the balance on the official settlements basis remained in surplus as a result of 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 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 forthcoming Treasury refunding, System open market operations 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, Bopp, Brimmer, Clay, Coldwell, Daane, Maisel, Mitchell, Robertson, and Scanlon. Votes against this action: None. Absent and not voting: Mr. Sherrill.