August 15, 1972 FOMC Record of Policy Actions

FOMC minutes

the day before the July meeting and an interim low of 3.77 per cent at the beginning of August. Contract interest rates on conventional mortgages on new homes rose slightly from June to July, but rates on the much larger volume of new loans on existing homes remained stable. Yields also were stable in the secondary market for Federally insured mortgages. Inflows of savings funds to nonbank thrift institutions increased further in July and were substantially above the second-quarter rate. At commercial banks, real estate and consumer loans con tinued to expand rapidly in July, and outstanding business loans rose substantially after having declined in June. Banks reduced their holdings of U.S. Government securities, as the Treasury's net borrowing demands were smaller than customary in July. Growth in the narrowly defined money stock (private demand deposits plus currency in circulation, or M1) was unusually rapid in July following low rates of growth in May and June. Expansion in the more broadly defined money stock (M1 plus commercial bank time and savings deposits other than large-denomination CD's, or M ) was a little faster in July than in June, despite a marked reduction in inflows of consumer-type time and savings deposits to banks. Growth was substantial in the bank credit proxy--

daily-average member bank deposits, adjusted to include funds from nondeposit sources- -reflecting not only a sharp rise in private demand deposits but also an increase in the outstanding volume of large-denomination CD's. System open market operations in the period since the July 18 meeting of the Committee had been directed at fostering growth in reserves available to support private nonbank deposits (RPD's) at an annual rate of between 3 and 7 per cent in the July August period, while avoiding sharp day-to-day fluctuations and large cumulative changes in money market conditions. Through most of the period it had appeared that growth in RPD's might exceed the target range. For that reason, and also because the monetary aggregates were expanding rapidly, the System undertook to slow the increase in reserves to the extent feasible in light of the large-scale Treasury refunding then in process. At present it appeared that RPD's would grow over the July-August period at a rate of about 6.5 per cent. The Federal funds rate had risen from about 4-5/8 per cent at the time of the preceding meeting to around 4-3/4 per cent in recent days. In the 4 weeks ending August 9 member bank borrowings averaged about $250 million, compared with about $180 million in the preceding 4 weeks.

Committee agreed that the economic situation continued The in the monetary aggregates over the to call for moderate growth to seek growth in RPD's during the months ahead. It decided period at an annual rate in a range of 5 to 9 August-September to be associated with some cent--a rate which was expected per growth. While recognizing that pursuit moderation in monetary be associated with some firming of the objective for RPD's might Committee agreed that a marked of money market conditions, the unduly sharp increases in interest firming, which might precipitate market atmosphere, should be avoided. The rates in a sensitive decided that in the conduct of operations, account members also should be taken of developments in capital markets and international and that some allowance should also be made in operations developments, in the monetary aggregates appeared to be deviating if growth the rates expected. It was understood that the significantly from Chairman might call upon the Committee to consider the need for supplementary instructions before the next scheduled meeting if suggested that the Committee's purposes and financial developments constraints were not being met satisfactorily. The following current economic policy directive was issued to the Federal Reserve Bank of New York: reviewed at this meeting indicates The information that real output of goods and services increased at a quarter, and continued though rapid rate in the second less rapid growth appears in prospect for the current quarter. The unemployment rate was lower in June and July, but it was still substantial. The pace of advance in wage rates has slowed on balance in recent months, and the rate of increase in average prices of all goods and services in the private economy

moderated in the second quarter. In July, the rise in wholesale prices of industrial commodities slowed, but wholesale prices of farm and food products rose sharply further. Since mid-July foreign exchange market con ditions have been quiet and the central bank reserves of most industrial countries have changed little. In June, the large excess of U.S. merchandise imports over exports persisted. The narrowly defined money stock grew at an unusually rapid rate in July, following relatively slow growth in May and June. Growth in the broadly defined money stock remained substantial, although inflows of consumer-type time and savings deposits to banks slowed appreciably. The bank credit proxy expanded sharply in July, reflecting strength in both private demand deposits and large-denom ination CD's. In recent weeks, interest rates on most market securities have declined somewhat on balance, and the Treasury completed a highly successful refunding. In light of the foregoing developments, it is the policy of the Federal Open Market Committee to foster financial conditions 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 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. Burns, Hayes, Brimmer, Bucher, Coldwell, Daane, Eastburn, MacLaury, Mitchell, Robertson, Sheehan, and Winn. Votes against this action: None.