December 19, 1972 FOMC Record of Policy Actions

FOMC minutes

in Treasury deposits and a the substantial increase reflecting volume of large-denomination CD's. In rise in the outstanding early December expansion in M1 quickened, and it now appeared average rates of growth in the monetary aggregates that the over the second half of the year would be relatively rapid. open market operations since the November meeting System guided by the Committee's decision at that meeting had been to seek bank reserve and money market conditions to continue support more moderate monetary growth than the annual that would rates of about 8.5 per cent for M1 and 9.5 per cent for M2 , recorded over the third quarter.4/ Accordingly, operations fostering growth in reserves available had been directed toward private nonbank deposits (RPD's) at an annual rate to support of 6 to 10 per cent in the November-December period, in a range while avoiding marked changes in money market conditions and account of the continuing effects of the bank regulatory taking changes implemented in early November. the rate of growth intermeeting period much of the Through above the specified appeared to be substantially in RPD's had expansion in nonbor had acted to restrain range, and the System had firmed. money market conditions As a result, rowed reserves. on the basis of the rates cited are calculated 4/ Growth of the quarter relative level in the last month daily-average of the preceding quarter. that in the last month to

The Federal funds rate had risen to about 5-1/2 per cent in the days before this meeting from about 5 per cent at the time of the preceding meeting. Member bank borrowings had increased to an average of about $655 million in the 3 weeks ending December 13 from about $640 million in the preceding 5 weeks, and in the last few days before this meeting borrowings had risen substantially, At the time of this meeting it still appeared that RPD's would grow over the November-December period at a rate somewhat above the specified range. However, the excess was not large, and in part it was attributable to a shift in the multiplier relationship between reserves and deposits that reflected greater than-anticipated expansion in deposits at large member bankswhich are subject to higher marginal reserve requirements--and lower-than-anticipated expansion at smaller banks. The Committee agreed that the economic situation called for growth in the monetary aggregates at slower rates than those that appeared likely to be recorded for the second half of 1972. At the same time, the members noted that financial markets were still adjusting to the firming in money market conditions that had occurred in recent weeks. They took account of a staff

analysis of prospective reserve-deposit relationships which suggested that the Committee's objectives for the aggregates might be served by fostering growth in RPD's during the December-January period at an annual rate within a range of 7 to 11 per cent. However, in view of the rapid expansion in monetary aggregates since the preceding meeting, the members concluded that reserve-supplying operations that would result in an easing of money market conditions should be avoided unless the annual rate of RPD growth appeared to be dropping below 4 per cent. Accordingly, they decided that open market operations should be directed at fostering RPD growth during the 2-month period within a range of 4 to 11 per cent, while continuing to avoid marked changes in money market conditions. They also agreed that in the conduct of operations account should be taken of the forthcoming Treasury financings and possible credit market developments, and that allowance should be made in operations if growth in the monetary aggregates appeared to be deviating from an acceptable range. It was understood that the Chairman might consider calling upon the Committee to appraise the need for supplementary instructions before the next scheduled meeting if significant inconsistencies appeared to be developing among the Committee's various objectives and constraints.

The following current economic policy directive was issued to the Federal Reserve Bank of New York: reviewed at this meeting, including The information recent gains in industrial production, employment, strong suggests that real output of goods and and retail sales, services is growing more rapidly in the current quarter the third quarter. The unemployment rate has than in declined. Wage rates increased little in November, following 2 months of large increases. Consumer prices again in October, and wholesale prices rose considerably rose sharply in November. The over-all deficit in the has remained substantial in recent U.S. balance of payments there has been a moderate reduction in the months, but excess of U.S. merchandise imports over exports since last spring and summer. In November rates of growth in the monetary aggre gates generally remained moderate, but expansion in the narrowly defined money stock quickened in early December. In recent weeks most market interest rates have tended upward. 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 Treasury financing operations and possible credit market developments, the Committee seeks to achieve bank reserve and money market conditions that will support slower growth in monetary aggregates over the months ahead than appears indicated for the second half of this year. Votes for this action: Messrs. Burns, Hayes, Brimmer, Bucher, Coldwell, Daane, Eastburn, MacLaury, Mitchell, Robertson, Sheehan, and Winn. Votes against this action: None.