April 17, 1973 FOMC Record of Policy Actions

FOMC minutes

Toward the end of March, incoming data began to suggest that RPD's might grow at a rate below the specified range because of weaker-than-expected expansion in private demand deposits, and System operations were directed toward somewhat less tautness in bank reserve and money market conditions. In early April, available data continued to suggest that growth ii RPD's in the March-April period would be below the specified range, but on April 11 a majority of the Committee members agreed that bank reserve and money market con ditions should not be eased further in the few days before the next meeting. In those remaining days, the Federal funds rate was about 7 per cent, down slightly from the level prevailing in the days before the March meeting. In the 4 weeks ending April 11, member bank borrowings averaged about $1,850 million, compared with an average of $1,665 million in the preceding 5 weeks. The Committee agreed that the economic situation and prospects called for moderate growth in the monetary aggregates over the months ahead, continuing the policy course agreed upon at the preceding meeting. The members took note of a staff analysis suggesting that the demand for money was likely to be stronger over the near term than it had been in the first quarter of the year, reflecting the unusually large Federal tax refunds--which would add to demand deposits temporarily--and continued strong expansion in economic activity. Although it was likely that expansion in the outstanding

volume of large-denomination CD's would slow from the rapid pace in February and March, the increase was still expected to be large. Therefore, a relatively rapid rate of growth in RPD's in the April May period was projected to be consistent with moderate growth in the monetary aggregates over the months ahead. The analysis also suggested that such a rate of growth in RPD's might be associated with little change in money market conditions and short-term interest rates in general. The Committee decided that operations should be directed at fostering RPD growth during the April-May period at an annual rate within a range of 10 to 12 per cent, while continuing to avoid marked changes in money market conditions. The members also agreed that, in the conduct of operations, account should be taken of the forthcoming Treasury financing and of deviations in monetary growth 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. The following domestic policy directive was issued to the Federal Reserve Bank of New York: The information reviewed at this meeting suggests continued rapid growth in real output of goods and services in the first quarter, spurred by an extraordinary increase in consumption expenditures. Over the first 3 months of this year, employment rose strongly but the unemployment rate remained about 5 per cent. The recent advance in wage rates has been more moderate than in the latter part of 1972, but the increase in social security taxes in January added significantly to payroll costs. The

rate of increase in prices stepped up very sharply in the first quarter. Prices of foods have continued to rise at wholesale and retail, and in both February and increases in wholesale prices of industrial commodi March ties were large and widespread. Foreign exchange markets have been relatively quiet since mid-March, and there has been a moderate reflow into dollars. The U.S. merchan dise trade balance improved a little in January-February, when both exports and imports were sharply higher than in the fourth quarter of 1972. Growth in both the narrowly and more broadly defined money stock slowed markedly in the first quarter following a bulge toward the close of last year. However, in the face of strong loan demand--especially from businessesbanks sharply increased their issuance of large-denomination CD's, and the bank credit proxy expanded very rapidly. Short-term market interest rates continued to rise until the beginning of April, but since then some rates--partic ularly those on Treasury bills--have declined. Rates on long-term market securities have moved down on balance in recent weeks. In light of the foregoing developments, it is the policy of the Federal Open Market Committee to foster financial conditions conducive to abatement of inflationary pressures, a more sustainable rate of advance in economic activity, and progress toward equilibrium in the country's balance of payments. To implement this policy, while taking account of forthcoming Treasury financing, the Committee seeks to achieve bank reserve and money market conditions con sistent with moderate growth in monetary aggregates over the months ahead. Votes for this action: Messrs. Burns, Hayes, Balles, Brimmer, Bucher, Daane, Francis, Mitchell, Morris, Robertson, Sheehan, and Winn. Votes against this action: None. Absent and not voting: Mr. Mayo. (Mr. Winn voted as his alternate.)

2. Revision of guidelines for operations in Federal agency issues At this meeting the Committee revised the third and fourth of the guidelines for the conduct of System operations in securities issued by Federal agencies. Initial guidelines had been approved on August 24, 1971, with the understanding that they would be subject to review and revision, and guidelines 5 and 6 had been revised on February 15 and April 17, 1972, respectively. Prior to today's action, guidelines 3 and 4 had contained references to "initial" activities. Thus, number 3 read "As an initial the System would aim at building up a modest portfolio objective, of agency issues, with the amount and timing dependent on the make net acquisitions without undue market effect," and ability to number 4 read "System holdings of maturing agency issues will be off at maturity, at least initially." The revision allowed to run of guideline 3 consisted of eliminating the outdated reference to building up a portfolio and the revision in guideline 4 consisted of deletion of the phrase "at least initially." Votes for this action: Messrs. Burns, Hayes, Balles, Brimmer, Bucher, Daane, Francis, Mitchell, Morris, Robertson, Sheehan, and Winn. Votes against this action: None. Absent and not voting: Mr. Mayo. (Mr. Winn voted as his alternate.)