March 21, 1972 FOMC Record of Policy Actions

FOMC minutes

Votes for this action: Messrs. Burns, Hayes, Brimmer, Coldwell, Daane, Eastburn, MacLaury, Maisel, Mitchell, Robertson, Sheehan, and Winn. Votes against this action: None. On March 7, 1972, a majority of Committee members had voted to suspend, until the close of business on March 21, 1972, the lower limit (set forth in paragraph 1(c) of the continuing authority directive) on interest rates on repurchase agreements (RP's) arranged by the Federal Reserve Bank of New York with nonbank dealers. The provision in question--which had also been suspended for the periods from December 23, 1971, through January 11, 1972, and from January 26 through February 15, 1972--specified that such RP's were to be made "at rates not less than (1) the discount rate of the Federal Reserve Bank of New York at the time such agreement is entered into, or (2) the average issuing rate on the most recent issue of 3-month Treasury bills, whichever is the lower." Votes for this action: Messrs. Hayes, Coldwell, Daane, Eastburn, MacLaury, Mitchell, Sheehan, and Winn. Votes against this action: Messrs. Brimmer and Robertson. Absent and not voting: Messrs. Burns and Maisel. This action had been taken on recommendation of the Manager, to provide against the contingency that under existing rate limita tions it might not prove feasible to enter into RP's during coming

days in the volume likely to be found desirable to meet the Committee's bank reserves. It was understood that rates objectives for member cent would not be used without prior notification to below 3-1/4 per the Committee. Mr. Brimmer had dissented from this action because he felt that excessive reliance was being placed on RP's in open market opera tions. He was also disturbed about the frequency with which RP's had been made recently at rates below the lower limit that would obtain in the absence of Committee action to suspend the relevant provision of the continuing authority directive. He thought that since such RP rates were typically below yields on 3-month Treasury bills, their continued use might give the market a misleading impression of the Committee's policy objectives. Mr. Robertson had dissented from the action in question for the same reasons underlying his dissents from similar actions taken in December and January. He preferred to have needed reserves injected into the banking system by means of outright purchases of Treasury securities in the open market rather than through RP's with Government securities dealers. In his judgment such agreements actually constituted subsidized loans to dealers. The action of March 7 was ratified by unanimous vote at today's meeting. Messrs. Brimmer and Robertson, having recorded their dissents from the action of March 7, did not consider it nec essary to dissent also from the ratification.

3. Review of continuing authorizations. This being the first meeting of the Federal Open Market Committee following the election of new members from the Federal Reserve Banks to serve for the year beginning March 1, 1972, and their assumption of duties, the Committee followed its customary practice of reviewing all of its continuing authorizations and directives. The Committee reaffirmed the continuing authority directive with respect to domestic open market operations, the authorization for System foreign currency operations, and the foreign currency directive in the forms in which they were pres ently outstanding. Votes for these actions: Messrs. Burns, Hayes, Brimmer, Coldwell, Daane, Eastburn, MacLaury, Maisel, Mitchell, Robertson, Sheehan, and Winn. Votes against these actions: None. In connection with the review of the continuing authority directive for domestic open market operations, the Committee took paragraph 3, which authorized the Reserve Banks to special note of engage in lending of U.S. Government securities held in the System Open Market Account under such instructions as the Committee might to time. That paragraph had been added to the specify from time directive on October 7, 1969, on the basis of a judgment by the Committee that in the existing circumstances such lending of secu to the effective conduct of open rities was reasonably necessary

operations and to the effectuation of open market policies, market that the authorization would be reviewed and on the understanding At this meeting the Committee concurred in the judg periodically. the Manager that the lending activity in question remained ment of necessary and, accordingly, that the authorization should remain in effect subject to periodic review.