June 19–20, 1972 FOMC Record of Policy Actions

FOMC minutes

6/19-20/72 and possible Treasury financing. As at other recent meetings, it was understood that the Chairman might call upon the Com mittee to consider the need for supplementary instructions before the next scheduled meeting if it appeared that the Committee's objectives and constraints were not being met satisfactorily. The following current economic policy directive was issued Reserve Bank of New York: to the Federal The information reviewed at this meeting, including recent data for such measures of business activity as indus trial production, employment, and retail sales, suggests that real output of goods and services is growing at a faster rate in the current quarter than in the two preced ing quarters, but the unemployment rate remains high. In May wholesale prices of farm and food products advanced appreciably--after having changed little in April--and the rise in prices of industrial commodities remained substan tial. The most recent data suggest some moderation in the pace of advance in wage rates, The U.S. balance of payments has been in surplus in recent weeks on both the official settlements basis and the net liquidity basis. In April, however, the excess of merchandise imports over exports was even larger than in February and March. Some strains have developed in international financial markets recently, involving European currencies. Growth in the narrowly defined money stock slowed further in May, while growth in the broadly defined money stock stepped up somewhat as inflows of consumer-type time and savings deposits to banks expanded considerably; over the April-May period, growth in both measures of the money stock was well below the high rates in the first quarter of the year. The outstanding volume of large-denomination CD's increased substantially further in May, and expansion in the bank credit proxy remained rapid. In recent weeks, market interest rates have continued to fluctuate in a narrow range.

6/19-20/72 of the foregoing developments, it is the policy In light of the Federal Open Market Committee to foster financial con ditions conducive to sustainable real economic growth and increased employment, abatement of inflationary pressures, and attainment of reasonable equilibrium in the country's balance of payments. To implement this policy, while taking account of possible Treasury financing and developments in capital markets, the Committee seeks to achieve bank reserve and money market conditions that will support moderate growth in the monetary aggregates over the months ahead. Votes for this action: Messrs. Burns, Brimmer, Bucher, Coldwell, Daane, Eastburn, MacLaury, Mitchell, Robertson, Sheehan, Winn, and Treiber. Votes against this action: None. Absent and not voting: Mr. Hayes. (Mr. Treiber voted as his alternate.) Subsequent to this meeting, on July 6, 1972, Committee members voted to amend this current economic policy directive by adding a reference to international developments in the final paragraph. As amended, that paragraph read as follows: To implement this policy, while taking account of possible Treasury financing, developments in capital markets, and international developments, the Committee seeks to achieve bank reserve and money market conditions that will support moderate growth in monetary aggregates over the months ahead. Votes for this action: Messrs. Brimmer, Bucher, Coldwell, Daane, Eastburn, MacLaury, Robertson, Sheehan, Winn, and Treiber. Votes against this action: None. Absent and not voting: Messrs. Burns, Hayes, and Mitchell. (Mr. Treiber voted as Mr. Hayes' alternate.)

6/19-20/72 -8 preceding this action, foreign central banks had In the 3 days large amounts of dollars in the process of maintaining acquired exchange rates for their currencies within the internationally agreed margins. The System Account Manager advised that, insofar as the investment of these and any additional funds that might be acquired by the foreign central banks took the form of purchases of U.S. Treasury bills in the market, they would tend to exert downward pressures on bill rates. In the interests of the U.S. balance of payments and international confidence in the dollar, the members decided that open market operations should be conducted with a view to avoiding significant declines in bill rates, insofar as that was consistent with the objectives agreed upon by the Committee on June 20, 1972. Specifically, it was decided that (1) to the extent feasible, reserve additions required to meet the Committee's objectives should be made by means other than purchases of Treasury bills, and (2) foreign official demands for bills, if heavy, should be met to the extent feasible by sales of bills from the System's portfolio, with any undesired reserve effects offset by other means. The members agreed that the directive should be amended to affirm the Committee's intention to authorize such operations. In casting their affirmative votes, a number of members indicated that while they believed the authorization desirable they thought it should be used with restraint. Mr. Brimmer noted that he

6/19-20/72 -9 favored the action not only on the international grounds cited but also because he thought a significant decline in bill rates would have adverse domestic implications,