June 23, 1970 FOMC Record of Policy Actions

FOMC minutes

varied over a wide range, from a high of $1.2 billion in the statement week ending June 3 to a low of $650 million 2 weeks later. Earlier on the day of this meeting the Board of Governors had amended Regulation Q, effective the next day, to suspend interest rate ceilings on CD's and other single-maturity time deposits in denominations of $100,000 and over with maturities of 30 through 89 days.1/ This action was taken in recognition of the possibility that current uncertainties in financial markets, including the commercial paper market, could result in unusual demands upon commercial banks for short-term credit accommodation. During the course of May the outstanding volume of large denomination CD's of all maturities had declined slightly. Growth in such CD's had been substantial from early February through mid-April, but had slowed considerably in the latter part of April when increases in interest rates on competitive short-term securities reduced the relative attractiveness of CD's offered at then-prevailing ceiling rates. Inflows of other types of time and savings funds at banks--and at nonbank thrift institutions--had remained sizable in May. The annual rate of increase in the money stock from April to 4 per cent--less than half the rate estimated at the May was about time of the May 26 meeting and even further below the rapid rates 1/ The ceiling rates on such deposits had been 6-1/4 and 6-1/2 per cent for maturities of 30-59 days and 60-89 days, respectively.

experienced in March and April. According to tentative estimates, the money stock was declining slightly on the average in June. These estimates implied that the annual rate of growth of money over the second quarter 2/ would be about 4.5 per cent, compared with 3.8 per cent in the first quarter. The bank credit proxy--daily-average member bank depositswas about unchanged on the average in May after adjustment for an increase in banks' use of funds from nondeposit sources. In March proxy series had risen considerably. Tenta and April the adjusted tive estimates suggested that the adjusted proxy series was expanding at a substantial rate in June; and that its growth over the second quarter would be at an annual rate of about 7 per cent, following the 0.5 per cent increase of the first quarter. Staff analysis suggested that if prevailing money market conditions were maintained the money stock would increase at an annual rate of about 5 per cent over the third quarter--growing some what faster than this from June to July and then slowing as the quarter progressed. It was expected that growth in time deposits--and, consequently, in the bank credit proxy--would be stimulated by the Board's suspension of Regulation Q ceiling rates on large-denomination CD's of less than 90 days maturity. According to a rough estimate presented at the meeting, the adjusted proxy series might grow in 2/ Calculated on the basis of the daily-average level in the last month of the quarter relative to that in the last month of the preced ing quarter.

the third quarter at an annual rate of about 9 per cent. It was noted, however, that any such estimates were highly uncertain in part because of the difficulties of foreseeing the extent to which credit flows would be shifted to banking channels from the market. The Committee concluded that uncertainties and strains in financial markets remained sufficiently great to warrant giving continued priority in open market operations to the objective of moderating pressures in those markets. The members also decided that, to the extent compatible with that course, operations should be directed at fostering moderate growth in money and bank credit in the longer run--including growth in money over the third quarter at about the 5 per cent annual rate indicated by the analysis noted above. It was agreed that more rapid growth in bank credit than contemplated earlier would not necessarily be inconsistent with the Committee's longer-run objective;to the extent that the Board's Regulation Q action resulted simply in a shift of credit flows from market to banking channels, it would not involve an increase in over-all credit flows. The following current economic policy directive was issued to the Federal Reserve Bank of New York: The information revie.ed at this meeting suggests that real economic activity is changing little in the current quarter after declining appreciably earlier in the year. Prices and costs generally are continuing to rise at a rapid pace, although some components of major price indexes recently have shown moderating tendencies.

Since late May market interest rates have shown mixed changes following earlier sharp advances, and prices of common stocks have recovered part of the large decline of preceding weeks. Attitudes in financial markets continue to be affected by uncertainties and conditions remain sensitive, particularly in light of the insolvency of a major railroad. In May bank credit changed little and the money supply rose moderately on average, following substantial increases in both measures in March and April. Inflows of consumer-type time and savings funds at banks and nonbank thrift institutions have been sizable in recent months, but the brief spring upturn in large denomination CD's outstanding at banks has ceased. The over-all balance of payments was in heavy deficit in April and May. 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, in view of persisting market uncertainties and liquidity strains, open market operations until the next meeting of the Committee shall continue to be conducted with a view to moderating pressures on financial markets. To the extent compati ble therewith, the bank reserves and money market condi tions maintained shall be consistent with the Committee's longer-run objective of moderate growth in money and bank credit, taking account of the Board's regulatory action effective June 24 and some possible consequent shifting of credit flows from market to banking channels. Votes for this action: Messrs. Burns, Brimmer, Daane, Francis, Heflin, Hickman, Maisel, Mitchell, Robertson, Sherrill, Swan, and Treiber. Votes against this action: None. Absent and not voting: Mr. Hayes. (Mr. Treiber voted as his alternate.)