January 15, 1970 FOMC Record of Policy Actions

FOMC minutes

Over the fourth quarter in foreign official time deposits. further rise and savings deposits had been about unchanged. as a whole total time and the money stock declined during Private demand deposits they increased sharply in the final week most of December. However, in part of various technical factors and in of the year--as a result large year-end money flows, apparently including part of exceptionally funds from abroad by corporations in compliance the repatriation of with Government controls on foreign direct investments. The year-end which was believed likely to prove temporary, was sufficient surge, to cause the money stock to grow at an annual rate of about 2 per cent from November to December and about 1 per cent over the fourth quarter as a whole. In the third quarter the money stock had not grown. Bank credit, as measured by the proxy series--daily-average member bank deposits 1/ declined from November to December at an 1/ In recent years the Committee has been making use of daily-average statistics on total member bank deposits as a "bank credit proxy"--that is, the best available measure, although indirect, of developing movements in bank credit. Because the deposit figures are compiled on a daily basis with a very short lag, they are more nearly current than available bank loan and investment data. Moreover, average deposit figures for a calendar month are much less subject to the influence of single-date fluctuations than are the available month-end data on total bank credit, which represent estimates of loans and investments at all commercial banks on one day--the last Wednesday--of each month. For statistics on daily-average member bank deposits, see the table in the statistical section of the Federal Reserve Bulletin (p. A-17 of the January 1970 issue). Some brief comments on the relation between the member bank deposit series and the bank credit statistics are given in the note on p. 1460 of the Bulletin for October 1966. As indicated in that note, movements in total member bank deposits and in commercial bank credit can diverge for various reasons, including changes in "nondeposit" liabilities of banks. Changes in U.S. bank liabilities to foreign branches and, more recently, in funds raised by other means--particularly the sale of commercial paper by bank affiliates--have become important sources of such diver gence. Accordingly, an "adjusted" proxy series, taking approximate account of such changes, is also calculated for Committee use.

After adjustment for changes in the annual rate of 0.5 per cent. volume of funds obtained by banks from "nondeposit" outstanding in the average level of their Euro sources--including a reduction foreign branches and a rise in the volume dollar borrowings through through sales of commercial paper by bank affil of funds obtained series increased at an annual rate of 1.5 per cent iates--the proxy to December. The adjusted bank credit proxy rose at from November a 2 per cent annual rate during the fourth quarter, following a decline at a 4.3 per cent rate in the third quarter. Staff projections suggested that the adjusted bank credit quarter and the money stock would would decline over the first proxy on balance, assuming maintenance of prevailing money change little and no changes in maximum interest rates payable market conditions on time and savings deposits under the Board's Regulation Q. The series was projected to contract at annual rates of adjusted proxy 1 to 4 per cent from December to January and 4 to 7 per cent from in large part because of anticipated net reduc January to February, tions in time and savings deposits. note of the leveling off in real economic activ hile taking ity, the Committee agreed that any marked relaxation of monetary restraint would be premature at present in light of the persistence pressures and expectations. At the same time, con of inflationary concern .as expressed about the prospect that in the first siderable

money stock would continue to show no quarter both bank credit and the market conditions and Regulation Q significant growth if prevailing money were maintained. In this connection it was reported that ceiling rates the Board of Governors planned shortly to consider increases in the Regulation Q ceilings. policy, some members expressed In the discussion of open market specific money market conditions sought--within the the view that the range of conditions sufficiently firm to be consistent with a posture of monetary restraint--should be those most likely to be conducive to modest growth in bank credit and the money stock over the first quarter. Other members thought that a slight lessening of pressures on the money market might be accommodated, but they nevertheless favored relying mainly on early action with respect to Regulation Q in the effort to encourage some growth in bank credit. Still others indicated that on balance they were inclined toward maintaining the prevailing conditions in the money market. The Committee concluded that in the conduct of open market operations increased stress should be placed on the objective of achieving modest growth in the monetary aggregates, with about equal weight being given to bank credit and the money stock. It was agreed that operations should be directed at maintaining firm conditions in the money market, but that they should be modified if it appeared that the objective with respect to the aggregates was not being achieved. It was also agreed that account should be taken of the forthcoming Treasury refunding, and of the effects of any action by the Board with respect to Regulation Q.

policy directive was issued following current economic The to the Federal Reserve Bank of Ne York: this meeting suggests that information reviewed at The off in the fourth quarter of real economic activity leveled is in prospect for the early 1969 and that little change costs, however, are continuing to part of 1970. Prices and a rapid pace. Most market interest rates have rise at during December. Bank credit and receded from highs reached supply increased slightly on average in December the money also over the fourth quarter as a whole. Outstanding and CD's held by domestic depositors have large-denomination continued to contract in recent months while foreign official time deposits have expanded considerably. Flows time and savings funds at banks and non of consumer-type bank thrift institutions have remained weak, and there apparently were sizable net outflows after year-end interest crediting. U.S. imports and exports have both in recent months but through November the gro n further trade balance showed little or no further improvement third-quarter level. At the year-end the over-all from the payments statistics were buoyed by large tem balance of of U.S. corporate funds. In light of the porary inflows foregoing developrents, it is the policy of the Federal Open Market Committee to foster financial conditions conducive to the orderly reduction of inflationary pressures, with a view to encouraging sustainable economic groth and attaining reasonable equilibrium in the country's balance of payments. this policy, while taking account of the To implement forthcoming Treasury refunding, possible bank regulatory changes and the Committee's desire to see a modest growth in money and bank credit, System open market operations until the next meeting of the Committee shall be conducted with a view to maintaining firm conditions in the money market; provided, however, that operations shall be mod ified if money and bank credit appear to be deviating significantly from current projections. Votes for this action: Messrs. Martin, Hayes, Bopp, Brimmer, Clay, Coldwell, Daane, Maisel, Mitchell, Robertson, Scanlon, and Sherrill. Votes against this action: None.