January 16, 1973 FOMC Record of Policy Actions

FOMC minutes

System open market operations since the December 19 meeting decision to seek bank reserve had been guided by the Committee's conditions that would support slower growth in and money market over the months ahead than appeared to be monetary aggregates for the second half of 1972. Operations had been directed indicated fostering growth in reserves available to support private toward nonbank deposits (RPD's) at an annual rate within a range of 4 to 11 per cent in the December-January period, while avoiding marked changes in money market conditions and taking account of Treasury financing operations and possible credit market developments. Early in the intermeeting period data becoming available had suggested that the rate of growth in RPD's would be substantially above the specified range. Consequently, the System had acted to restrain expansion in reserves provided through open market operations--to the extent feasible in light of the even-keel constraint associated with the Treasury's auction of the long-term bond--and money market conditions had firmed over the period. The Federal funds rate had risen to about 5-3/4 per cent in the days before this meeting from around 5-1/2 per cent at the time of the preceding meeting, and member bank borrowings had increased to an average of about $1,200 million in the 4 weeks ending January 10 from an average of about $600 million in the preceding 4 weeks. At the time of this meeting

period RPD's would that in the December-January it still appeared the specified range. grow at a rate well above rates in general had and long-term market interest Shortmeeting on December 19. further since the Committee's risen moderately bills and some other markets, demands for Treasury In short-term and local government invest were strengthened by State instruments sharing. On the day before receipts from Federal revenue ment of Treasury bills was 5.27 the market rate on 3-month this meeting per cent 4 weeks earlier. In recog per cent, compared with 5.17 rise in short-term market interest rates nition of the substantial occurred over recent months and the sharply increased that had member bank borrowings, Federal Reserve discount rates level of one-half of a percentage point to 5 per cent, effective were raised January 15. The Committee agreed that the economic situation continued to call for growth in the monetary aggregates over the months ahead at slower rates than those recorded in the second half of 1972. The members took note of a staff analysis of prospective reserve deposit relationships which suggested that more moderate rates of monetary growth might be achieved in the January-February period by fostering growth in RPD's in that period at an annual rate within a range of 9 to 11 per cent. In view of the very rapid monetary

expansion in December, however, the members concluded that open market operations should be directed at achieving still greater restraint and 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 4.5 per cent. Specifically, they decided that operations should be directed at fostering RPD growth during the January-February period within a range of 4.5 to 10.5 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 forth coming Treasury financing 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:

The information reviewed at this meeting suggests and services expanded much that real output of goods in the fourth quarter than in the third more rapidly quarter, and the unemployment rate declined. Wage more rapidly in recent months rates have increased in the year. Consumer prices rose con than earlier in November. Wholesale prices of farm siderably again advanced sharply in December but those and food products of industrial commodities increased little. On January 11 announced Phase III of the economic stabi the President lization program, which has among its major objectives a further reduction in the rate of inflation. The over all deficit in the U.S. balance of payments has remained in recent months, and U.S. merchandise imports substantial rose more than exports in November. Growth in the narrowly and broadly defined money stock was exceptionally rapid in December, after having been moderate on average during the preceding 4 months. In recent weeks interest rates on both short- and long term securities have risen moderately. Effective January 15, Federal Reserve discount rates were raised one-half of a percentage point to 5 per cent. In light of the foregoing developments, it is the policy of the Federal Open Market Committee to foster financial conditions consonant with the aims of the economic stabilization program, including further abatement of inflationary pressures, sustainable growth in real output and employment, and progress toward equilibrium in the country's balance of payments. To implement this policy, while taking account of the forthcoming Treasury financing 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 occurred in the second half of last year. 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.)