April 7, 1970 FOMC Record of Policy Actions

FOMC minutes

The following current economic policy directive was issued to the Federal Reserve Bank of New York: The information reviewed at this meeting suggests that real economic activity weakened further in early 1970, while prices and costs continued to rise at a rapid pace. Fiscal stimulus, of dimensions that are still uncertain, will strengthen income expansion in the near term. Most long-term interest rates backed up during much of March under the pressure of heavy demands for funds, but then turned down in response to indications of some relaxation of monetary policy and to the reduction in the prime lending rate of banks. Short-term rates declined further on balance in recent weeks, contributing to the ability of banks and other thrift institutions to attract time and savings funds. Both bank credit and the money supply rose on average in March; over the first quarter as a whole bank credit was about unchanged on balance and the money supply increased somewhat. The U.S. foreign trade surplus increased in February, but the over-all balance of payments appears to have been in consider able deficit during the first quarter. In light of the foregoing developments, it is the policy of the Federal Open Market Committee to foster financial conditions conducive to orderly reduction in the rate of inflation, while encouraging the resumption of sustainable economic growth and the attainment of reasonable equilibrium in the country's balance of payments. To implement this policy, the Committee desires to see moderate growth in money and bank credit over the months ahead. System open market operations until the next meeting of the Committee shall be con ducted with a view to maintaining money market condi tions consistent with that objective, taking account of the forthcoming Treasury financing. Votes for this action: Messrs. Burns, Hayes, Brimmer, Daane, Francis, Heflin, Hickman, Maisel, Mitchell, Robertson, Sherrill, and Swan. Votes against this action: None.

2. Amendments to authorization for System foreign currency operations. At this meeting the Committee amended paragraph 1 of the authorization for System foreign currency operations in two respects. The limit on System holdings of guaranteed sterling specified in paragraph 1B(4) was reduced from $300 million to $200 million, the level that had been in effect prior to the increases of April and May, 1968; and the authority to have outstanding, under special arrangements with the Bank of Italy, up to $500 million of forward commitments in Italian lire, originally approved in November 1965 and contained in paragraph 1C(2), was removed by the deletion of that paragraph. With these changes, and with the renumbering as 1C(2) of the paragraph previously numbered as 1C(3), paragraph 1 of the authorization read as follows: 1. The Federal Open Market Committee authorizes and directs the Federal Reserve Bank of New York, for System Open Market Account, to the extent necessary to carry out the Committee's foreign currency directive and express authorizations by the Committee pursuant thereto: A. To purchase and sell the following foreign currencies in the form of cable transfers through spot or forward transactions on the open market at home and abroad, including transactions with the U.S. Stabiliza tion Fund established by Section 10 of the Gold Reserve Act of 1934, with foreign monetary authorities, and with the Bank for International Settlements: Austrian schillings Belgian francs Canadian dollars Danish kroner Pounds sterling

French francs German marks Italian lire Japanese yen Mexican pesos Netherlands guilders Norwegian kroner Swedish kronor Swiss francs listed in paragraph A B. To hold foreign currencies above, up to the following limits: purchased spot, including currencies (1) Currencies the Stabilization Fund, and sold forward to the purchased from Stabilization Fund, up to $1 billion equivalent; spot or forward, up to (2) Currencies purchased the amounts necessary to fulfill other forward commitments; purchased spot or forward, (3) Additional currencies up to the amount necessary for System operations to exert a market influence but not exceeding $250 million equivalent; and Sterling purchased on a covered or guaranteed (4) basis in terms of the dollar, under agreement with the Bank of England, up to $200 million equivalent. To have outstanding forward commitments undertaken C. A above to deliver foreign currencies, up to under paragraph the following limits: (1) Commitments to deliver foreign currencies to the Stabilization Fund, up to the limit specified in paragraph 1B(1) above; and (2) Other forward commitments to deliver foreign currencies, up to $550 million equivalent. D. To draw foreign currencies and to permit foreign banks to draw dollars under the reciprocal currency arrangements listed in paragraph 2 below, provided that drawings by either party to any such arrangement shall be fully liquidated within 12 months after any amount outstanding at that time was first drawn, unless the Committee, because of exceptional circumstances, specifically authorizes a delay.

Votes for these actions: Messrs. Burns, Hayes, Brimmer, Daane, Francis, Heflin, Hickman, Maisel, Mitchell, Robertson, Sherrill, and Swan. Votes against these actions: None. These actions were taken on the recommendation of the Special Manager, who advised that as a result of recent changes in circumstances the need had passed for the enlarged authority to hold guaranteed sterling and for the authority to have forward commitments in lire under special arrangements with the Bank of Italy.