February 13, 1973 FOMC Record of Policy Actions

FOMC minutes

3-month bills was 5.44 per cent, down from 5.76 per cent on February 1 but up from 5.27 per cent on the day before the January meeting. The rise in interest rates was more moderate for long term than for most short-term securities. The volume of new public offerings of corporate bonds, which had been reduced in December by the holidays, failed to rebound in January and appeared likely to remain at a reduced level in February. The volume of new State and local government bonds also changed little in January, and it appeared likely to decline in February. The Committee agreed that the economic situation called for growth in the monetary aggregates over the months ahead at somewhat slower rates than had occurred on average in the past 6 months. The members took note of a staff analysis suggesting that the sharp further advance in short-term interest rates that had occurred in recent months would probably retard growth in the for money over the months ahead. The analysis also suggested demand February-March period the Committee's objectives for that in the monetary growth might be fostered by pursuing growth in RPD's at an within a range of 0.5 to 2.5 per cent and that attain annual rate range probably would be associated with ment of RPD growth in that some additional firming of money market conditions and some upward pressure on long-term interest rates.

The Committee concluded that active reserve-supplying operations should be avoided unless RPD's in the February-March period appeared to be declining at an annual rate of more than 2.5 per cent. Specifically, the members decided that operations should be directed at fostering RPD growth during that period within a range of -2.5 to +2.5 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 possible credit market developments and international 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 continued substantial growth in real output of goods and services in the current quarter, although at a rate less rapid than in the fourth quarter of 1972. The unemployment rate has declined slightly further. In recent months wage rates have increased at a relatively rapid pace, and unit labor costs turned up in the fourth quarter of 1972. The rise in consumer prices slowed in December when retail prices of foods changed little,

but prices of foods and foodstuffs at earlier stages of distribution rose sharply in both December and January. The excess of U.S. merchandise imports over exports remained large in December. Heavy speculative movements out of dollars into German marks and some other curren cies developed in late January and early February. On February 12 the Government announced that the United States would devalue the dollar by 10 per cent. The narrowly defined money stock changed little in January after having increased sharply in December, and growth over the 2 months combined was at an average annual rate of about 6-1/2 per cent. Growth in the more broadly defined money stock slowed less abruptly from December to January as inflows of consumer-type time and savings deposits to banks accelerated. A sharp and pervasive increase has taken place in bank loans to businesses. In recent weeks market interest rates generally have risen further, with increases substantial for short-term rates and relatively moderate for long term rates. Most recently, however, Treasury bill rates have moved back down under the influence of foreign official buying. 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 possible domestic credit market and international deveopments the Committee seeks to achieve bank reserve and money market conditions that will support somewhat slower growth in monetary aggregates over the months ahead than occurred on average in the past 6 months. Votes for this action: Messrs. Burns, Hayes, Brimmer, Bucher, Coldwell, Eastburn, MacLaury, Mitchell, Robertson, Sheehan, and Winn. Votes against this action: None. Absent and not voting: Mr. Daane.

Developments subsequent to the meeting made it appear that RPD's would grow in the February-March period at an annual rate in excess of 2.5 per cent, even though money market condi tions had firmed and the Federal funds rate had averaged close cent for two successive weeks. On March 1, 1973, to 6-3/4 per that the weekly average Federal funds rate the members agreed to rise somewhat further if necessary to should be permitted limit growth in RPD's.