November 19–20, 1973 FOMC Record of Policy Actions

FOMC minutes

11/19-20/73 -8- months ahead. A staff analysis suggested aggregates over the that in the near term the demand for money would expand in response to the sizable increase in nominal GNP estimated for the fourth quarter and to the uncertainties generated by the oil shortage. The analysis also suggested that growth of con sumer-type time and savings deposits at banks would moderate from the high rates of recent months. While the outstanding volume of large-denomination CD's was expected to expand toward the end of the year in response to a renewal of growth in business loans at banks, it was anticipated that required reserves against such CD's would drop further in the November-December period. Consequently, negative growth in RPD's in that period--at an annual rate within a range of -1 to -3 per cent--was thought likely to be consistent with moderate growth in both the narrowly and the more broadly defined money stock over the months ahead. It was expected that such a change in RPD's would be associated with little change in money market conditions. The Committee decided that operations should be directed at fostering growth in RPD's during the November-December period at an annual rate within a range of -1 to -3 per cent, while avoiding unduly sharp changes in money market conditions. The members also agreed that, in the conduct of operations, account should be taken of international and domestic financial market

11/19-20/73 Treasury financing, and of developments, of the forthcoming from an acceptable range. It deviations in monetary growth might call upon the Committee was understood that the Chairman supplementary instructions before the to consider the need for if significant inconsistencies appeared next scheduled meeting the Committee's various objectives and to be developing among constraints. policy directive was issued to The following domestic the Federal Reserve Bank of New York: The information reviewed at this meeting suggests that growth in economic activity in the fourth quarter is likely to remain at about the moderate rate of the third quarter, but curtailment of oil supplies from abroad has generated considerable uncertainty about subsequent prospects. In October total nonfarm employ ment expanded substantially further, and the unemploy ment rate dropped from 4.8 to 4.5 per cent. The advance in wage rates has remained relatively rapid, and unit labor costs have been increasing at a fast pace. Whole sale prices of industrial commodities rose sharply in October, reflecting in part large increases for petroleum products; although farm and food prices declined con siderably further, they remained well above the pre freeze level of early June. In foreign exchange markets, the dollar appreciated against major foreign currencies following announcement in late October of a large surplus in the U.S. merchandise trade balance, and the dollar strengthened markedly further in early November as expectations grew that the developing oil crisis would create particularly severe problems for Western Europe and Japan. In the third quarter and in October, the balance of payments on an official settlements basis was in substantial surplus. The narrowly defined money stock, which had declined in August and September, rose moderately in October. The

11/19-20/73 as a expanded sharply money stock broadly defined more banks of consumer-type net inflows at result of large nonbank thrift inflows at Net deposit time deposits. Bank credit further. somewhat improved institutions in October, reflecting moderate in expansion remained loans as borrowers in business lack of growth part a The outstanding paper market. to the commercial shifted begun to which had CD's, of large-denomination volume further. fell substantially in late September, decline rates, while fluctuating market interest Short-term to mid-November. from mid-October rose on balance widely, also market securities types of long-term Rates on most advanced somewhat. it is developments, of the foregoing In light Committee to Open Market of the Federal the policy to abatement conditions conducive foster financial rate of a sustainable pressures, of inflationary in the and equilibrium in economic activity, advance balance of payments. country's taking account policy, while implement this To market develop domestic financial and of international bank reserve seeks to achieve ments, the Committee with moderate conditions consistent and money market months ahead. over the monetary aggregates growth in action: Messrs. Votes for this Brimmer, Bucher, Hayes, Balles, Burns, Mayo, Mitchell, Francis, Holland, Daane, against this action: Sheehan. Vote and Mr. Morris. felt that because he this action from Morris dissented Mr. outlook that in the economic marked deterioration view of the in energy crisis, from the weeks, stemming the past few occurred over had monetary policy of a more stimulative in the direction a modest move was appropriate. in the November appeared that meeting it to the Subsequent might exceed monetary aggregates growth in the December period

11/19-20/73 the System, under view of that behavior, ranges. In acceptable somewhat more restrictive would have become ordinary circumstances, that money market operations, expecting in its reserve-supplying 30, however, the somewhat. On November would tighten conditions by the Chairman in a recommendation members concurred available regarding the economic of current uncertainties that, in light financial market psychology, sensitive state of outlook and the conditions for money market to maintain current the System aim the time being.