May 27, 1969 FOMC Record of Policy Actions

FOMC minutes

of the persistence of markets. In view of stringency in financial however, the members pressures and expectations, strong inflationary the existing degree of monetary restraint agreed that a relaxation of There was some comment about be appropriate at this time. would not firming of policy, but it was the possible need for a slight further in financial markets in connection noted that the strains anticipated in June militated against such a course. with corporate tax payments the view that--while disorderly market A number of members expressed be avoided--concern among market participants over conditions should of a "credit crunch" would not in itself warrant an the possibility easing of monetary policy. decided that open market operations should be The Committee prevailing pressure on money and short directed at maintaining the with the proviso that operations should be term credit markets, bank credit appeared to be deviating significantly from modified if Although not all members were of the same view current projections. a number suggested that it would be desirable for the on the matter, the adjusted bank credit proxy in June to be kept to the change in lower end of the projected range, particularly since the measure currently understated the resources actually available to the banking number of members expressed the hope that growth in system. And a the money stock in June could be held below the rate projected.

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 is continuing to moderate slightly, but that substantial upward pressures on prices and costs are persisting. Interest rates have risen in recent weeks. Bank credit and the money supply appear to be changing little on average in May after bulging in April. The outstanding volume of large-denomination CD's has continued to decline, and the available evidence suggests only modest recovery in other time and savings deposits at banks and in savings balances at nonbank thrift institutions following the outflows of the first half of April. The U.S. balance of payments on the liquidity basis was in sizable deficit in the first 4 months of 1969 but the balance on the official settlements basis remained in surplus as a result of large inflows of Euro-dollars. However, there were substantial outflows of funds from the United States in the first half of May, during the period of intense speculation on a revaluation of the German mark, and the payments balance was in very large deficit on both bases. In light of the foregoing developments, 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, System open market operations until the next meeting of the Committee shall be conducted with a view to maintaining the prevailing pressure on money and short-term credit markets; provided, however, that operations shall be modified if bank credit appears to be deviating significantly from current pro jections. Votes for this action; Messrs. Martin, Hayes, Bopp, Brimmer, Clay, Coldwell, Daane, Maisel, Mitchell, Robertson, Scanlon, and Sherrill. Votes against this action: None.

2. Amendment to authorization for System foreign currency operations. The Committee ratified an action taken by members on May 14, 1969, effective on that date, equalizing the System's swap arrange ments with the National Bank of Belgium and the Netherlands Bank at $300 million, and making the corresponding amendment to paragraph 2 of the authorization for System foreign currency operations. Pre viously, the arrangement with the National Bank of Belgium had been in the amount of $225 million and that with the Netherlands Bank in the amount of $400 million. As a result of this action, paragraph 2 of the authorization read as follows, The Federal Open Market Committee directs the Federal Reserve Bank of New York to maintain reciprocal currency arrangements ("swap" arrangements) for System Open Market Account for periods up to a maximum of 12 months with the following foreign banks, which are among those designated by the Board of Governors of the Federal Reserve System under Section 214.5 of Regulation N, Relations with Foreign Banks and Bankers, and with the approval of the Committee to renew such arrangements on maturity, Amount of arrangement (millions of Foreign bank dollars equivalent) Austrian National Bank 100 National Bank of Belgium 300 Bank of Canada 1,000 National Bank of Denmark 100 Bank of England 2,000 Bank of France 1,000 German Federal Bank 1,000 Bank of Italy 1,000 Bank of Japan 1,000

Amount of arrangement (millions of Foreign bank dollars equivalent) Bank of Mexico 130 Netherlands Bank 300 Bank of Norway 100 Bank of Sweden 250 Swiss National Bank 600 Bank for International Settlements: Dollars against Swiss francs 600 Dollars against authorized European currencies other than Swiss francs 1,000 Votes for ratification of this action. Messrs. Martin, Hayes, Bopp, Brimmer, Clay, Coldwell, Daane, Maisel, Mitchell, Robertson, Scanlon, and Sherrill. Votes against ratification of this action: None. swap arrangements with the two central banks in The System's size for several years before the gold question had been of equal March 1968, when the arrangement with the Netherlands Bank crisis of Members of the Committee had had been increased by $175 million. of equality in the size mid-May to approve the restoration voted in of the two swap arrangements at $300 million upon recommendation of the Special Manager, who advised that the action was agreeable to the central banks of Belgium and the Netherlands.