May 15, 1973 FOMC Record of Policy Actions

FOMC minutes

market interest rates, which had risen sharply Short-term little further on balance in the earlier in the year, advanced the substantial increase in the inter-meeting period, despite Federal funds rate, Markets, especially for Treasury bills, by a shortage in the market supply of bills were strengthened and by current and prospective Treasury financing operations. On the day before this meeting, the market rate on 3-month Treasury bills was 6.17 per cent, compared with 6.19 per cent on the day before the April meeting. Federal Reserve discount rates were raised 1/4 percentage point, to 5-3/4 per cent, at all Reserve 23 and 1/4 point further, to 6 per cent, at 11 of Banks on April the Reserve Banks on May 11. rates on long-term securities had changed little Interest since the April meeting of the Committee, as demands for funds in the capital markets had remained moderate. The over-all volume of new public offerings of corporate and State and local government bonds had declined substantially in April, and although a partial recovery was in prospect, it appeared likely that the volume in May would be close to the reduced monthly rate in the first quarter. The Committee agreed that the economic situation and prospects called for somewhat slower growth in the monetary aggregates over the months immediately ahead than had occurred on average in the past 6 months. A staff analysis

of Federal personal large refunds that the unusually suggested to both demand deposits and income taxes had added temporarily consumer-type time and savings deposits and that as such refunds the demand for money would tend to moderate diminished growth in ahead. The analysis also suggested that in the period immediately in interest rates would work effects of recent increases the lagged in the direction of moderating the demand for money. Faced with sustained strong demands for credit, banks were likely to continue to increase substantially the outstanding volume of large-denomination analysis, relatively rapid growth CD's, Therefore, according to the in RPD's in the May-June period was likely to be consistent with somewhat slower growth in the monetary aggregates than had occurred on average over the past 6 months. The staff analysis also indicated that such a slowing in monetary growth would probably be associated with further increases in short-term interest rates and also with some rise in longer-term rates. The Committee decided that operations should be directed at fostering RPD growth during the May-June period at an annual rate within a range of 9 to 11 per cent, while continuing to avoid marked changes in money market conditions. The members also agreed that allowance should be made in operations if growth in the monetary aggregates appeared to be deviating from an acceptable range and that in the conduct of operations account should be taken of inter national and domestic financial market developments. It was

Committee to call upon the the Chairman might understood that before the next instructions the need for supplementary consider appeared to be if significant inconsistencies scheduled meeting objectives and constraints; the Committee's various developing among consultation would than usual that such seemed greater the chances be needed. was issued to the domestic policy directive The following Federal Reserve Bank of New York: information reviewed at this meeting suggests The that growth in real output of goods and services is likely to moderate somewhat in the current quarter from rapid pace in the two preceding quarters. an exceptionally first 4 months of this year, employment rose Over the considerably but the unemployment rate remained about 5 per cent. Retail prices of foods continued upward at an extraordinary pace in March, and in April average wholesale prices of consumer foods rose further. Increases in wholesale prices of industrial commodities were large and widespread in April, as in the two pre ceding months. In foreign exchange markets, which had been relatively quiet since mid-March, speculative pressures have developed in recent days and exchange rates for major European currencies have appreciated against the dollar. The U.S. merchandise trade balance improved considerably in the first quarter, reflecting in part an especially large increase in agricultural exports. In April growth in the narrowly defined money stock picked up from its low first-quarter rate, and growth in the broadly defined money stock also increased. Growth in business loans at banks slowed, and banks reduced the pace at which they issued large-denomination CD's; consequently, the bank credit proxy expanded somewhat less than in other recent months. In recent weeks Federal Reserve Bank discount rates have been increased in two steps of one-quarter point to 6 per cent by May 11. Most short-term market interest rates,

which had risen sharply earlier, have advanced slightly further. Interest rates on long-term market securities have been relatively stable. In light of the foregoing developments, it is the policy of the Federal Open Market Committee to foster financial conditions conducive to abatement of infla tionary 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 international and domestic financial market developments, the Committee seeks to achieve bank reserve and money market conditions consistent with somewhat slower growth in monetary aggregates over the months immediately ahead than occurred on average in the past 6 months. Votes for this action: Messrs. Burns, Hayes, Balles, Brimmer, Bucher, Daane, Francis, Mayo, Morris, and Sheehan. Votes against this action: None. Absent and not voting: Mr. Mitchell. Subsequent to the meeting it appeared that in the May-June period the annual rate of growth in RPD's would be above and that growth in the monetary aggregates would exceed 11 per cent an acceptable range, even though money market conditions continued to tighten. On May 24, 1973, and again on June 8, a majority of the members concurred in a recommendation by the Chairman that money market conditions should be permitted to tighten still further if necessary to limit growth in RPD's.