July 15, 1969 FOMC Record of Policy Actions

FOMC minutes

short-term credit markets. The projections allowed for some further borrowings of U.S. banks from the high level growth in Euro-dollar they did not include any allowance for possible of early July, but in the extent to which banks were utilizing funds from changes It was noted, however, that banks were other nondeposit sources. continue to increase their reliance on funds from such likely to sources. to the various categories of deposits, it was With respect that private demand deposits--and the money stock--would expected expand moderately from June to July and that U.S. Government would decline sharply. Also anticipated were a continuing deposits in large-denomination CD's and a reduction in the rapid run-off average level of consumer-type time and savings deposits. for August suggested only a slight further Projections decline in the average level of member bank deposits. Credit in that month were expected to be influenced by dealer demands of Treasury financing operations. In addition, and bank support with maturities of CD's in August less than in earlier months, it appeared likely that the run-off would moderate; and prospects seemed to favor some net inflow of consumer-type time and savings deposits. In the Committee's discussion a number of members commented that the response of the economy to existing monetary and fiscal restraints was as yet inadequate. Considerable concern was

expressed about the persistence of inflationary pressures and and about the uncertain prospects for congressional expectations action on extension of the income tax surcharge. members agreed that the forthcoming Treasury refunding The against any appreciable change in open market policy at militated however, expressed the opinion that a slight shift this time. Some, toward greater restraint might be warranted. A contrary view was also advanced, favoring a shading toward slightly less restraint in light of the projections for slackened growth in real GNP, recent and prospective changes in bank credit, and the risk that maintenance of current tight money market conditions for an extended period might lead to developments that would necessitate an undesirably large adjustment toward ease later on. Other members took the intermediate position that further firming would not be appropriate in view of the high degree of restraint already in effect but that, at the same time, the infla tionary environment and the uncertain status of tax legislation militated against even a slight move toward easing. In the latter connection, it was noted that any indications that monetary restraint was being relaxed might reinforce inflationary expectations just at a time when signs were beginning to appear that some attitudes about the outlook were changing. At the conclusion of the discussion the Committee agreed that open market operations should be directed at maintaining the currently prevailing firm conditions in money and short-term credit markets, with the proviso that operations should be modified, to the

extent permitted by the Treasury refunding, if bank credit appeared to be deviating significantly from current projections. The following policy directive was issued to the Federal Reserve current economic Bank of New York: The information reviewed at this meeting suggests that expansion in real economic activity, after moderating slightly in the first quarter, has continued at about the same pace since then. Substantial upward pressures on prices and costs are persisting. Market interest rates have fluctuated widely recently, partly because of varying expectations, although credit demands remain relatively strong. Short-term rates on balance have continued under upward pressure, against the background of considerable restraint on the banking system. In June bank credit showed little change, after allowance for assets sold to affiliates and to customers with bank guarantees. Growth in the money supply resumed at a slow pace, and the run-off of large-denomination CD's which began in mid-December continued without abatement. There apparently were sub stantial net outflows from consumer-type time and savings accounts at banks and nonbank thrift institutions around midyear, following a period of slackened growth. The over-all balance of payments deficit on the liquidity basis rose sharply in the second quarter; there were large outflows into German marks and into Euro-dollar deposits, and there was no significant improvement in net exports. In contrast, there was another large surplus on the official settlements basis as U.S. banks borrowed heavily in the Euro-dollar market. 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 encour aging 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 opera tions until the next meeting of the Committee shall be conducted with a view to maintaining the currently pre vailing 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, Bopp, Brimmer, Clay, Coldwell, Daane, Maisel, Robertson, Scanlon, Sherrill, and Treiber. Votes against this action: None. Absent and not voting: Messrs. Hayes and Mitchell. (Mr. Treiber voted as Mr. Hayes' alternate.)