November 19–20, 1973 FOMC Record of Policy Actions: Full Text
A L R E S E R V E F E D E R release press February 19, 1974 For immediate release Reserve System Governors of the Federal The Board of released the Committee today Federal Open Market and the the Federal Open actions taken by records of policy attached 19-20 and meetings on November at its Market Committee for the past, the record As in the 17-18, 1973. December along with has been released of the Committee December meeting than in accordance meeting rather for the November the record days after the schedule of approximately with the usual for the published record complete the in order to meeting at the Congressional testimony of the Chairman's year in advance and the Annual of the President Economic Report hearings on the Economic Advisers. Council of Report of the Board's Annual in the will be published These records Bulletin. The Federal Reserve 1973 and in the Report for and financial conditions of economic summary descriptions that was available on the information are based they contain rather than on time of the meetings, at the to the Committee revised since then. they may have been data as Attachments
RECORD OF POLICY ACTIONS FEDERAL OPEN MARKET COMMITTEE OF THE Meeting held on November 19-20, 1973 1/ Domestic policy directive at this meeting suggested that The information reviewed had risen to output of goods and services--which growth in real 3.5 per cent in the third quarter from an annual rate of about in the second quarter--would remain moderate about 2.5 per cent projections continued to suggest in the current quarter. Staff of an oil crisis, growth of real output that, in the absence 1974 and that the rise in slacken in the first half of would It was also suggested that con prices would remain rapid. flow of Arab oil to the United of the embargo on the tinuation of October--could have in the latter part States--announced adverse effects on the U.S. economy. significantly continued to grow at a In October industrial production advances in output of business substantial pace, reflecting of materials, which was and consumer goods; output equipment of capacity in some industries, pressing against the limits expanded in manufacturing, after changed little. Employment and total nonfarm payroll period of little change, a 3-month The unemployment rate employment increased appreciably. a 2-day period beginning on the 1/ This meeting was held over in order to provide more time for afternoon of November 19, 1973, situation and outlook concerning the economic the staff presentation and the Committee's discussion thereof.
11/19-20/73 dropped from 4.8 to 4.5 per cent, the lowest rate in 3-1/2 years. And advance reports indicated that retail sales rose substantially during the month, although sales of new automobiles declined significantly. The index of average hourly earnings of production workers on nonfarm payrolls continued to advance at a relatively fast pace in October, During the third quarter compensation per manhour in the private nonfarm sector of the economy increased substantially more than output per manhour, and unit labor costs rose sharply further. The uptrend in wholesale prices of industrial commodities accelerated in October, reflecting a large rise in prices of petroleum products and other fuels and widespread increases among other commodities. Wholesale prices of farm and food products fell substantially for the second consecutive month, as a result of marked decreases for livestock, meats, poultry, and soybeans; however, the index remained well above the pre-freeze level of early June. In September the rate of advance of the consumer price index slowed as retail prices of foods declined slightly after having risen sharply in August. Staff projections for the first half of 1974 suggested that business fixed investment would rise considerably further, that State and local government purchases of goods and services
11/19-20/73 that con rate, and at a substantial to grow would continue moderate pace at about the would expand sumption expenditures was also anticipated However, it half of 1973. of the second outlays would construction in residential the decline that level off. would investment inventory that business and persist in Septembersharply further exports rose U.S. merchandise exports of in increases part considerable for the most reflecting imports declined. materials--while and industrial capital equipment surplus. into substantial balance moved the trade As a result, was sizable trade surplus a whole, the quarter as For the third balance of payments years. The over-all time in 3 for the first substantial surplus also was in settlements basis on an official so in October. and it remained the third quarter, in of the large in late October Following the announcement and rose considerably, demand for dollars U.S. trade surplus, major foreign against the dollar appreciated rates for exchange sizable appreciation a further The dollar registered currencies. which was interpreted of the oil crisis, after the development for the severe problems as creating particularly in the markets Western Europe and Japan. economies of commercial banks, loans of U.S. Outstanding business unchanged in October. in September were had increased little which the commercial paper to shift to borrowers continued Business
11/19-20/73 to further relative rates declined market interest market as banks lowered though most on bank loans--even rates effective 10 to 9-3/4 from to large corporations rate applicable the prime rate to 9-1/2 reduced the and a few during the month per cent slowed in types of loans in most other per cent. Expansion substantial amounts continued to liquidate October, and banks securities. Bank holdings of of their holdings of Government agency issues--rose appre securities--primarily Federal other bank credit remained moderate. but the increase in total ciably, 2/ The narrowly defined money stock (M )2/ rose moderately Preliminary calcu following 2 months of declines. in October, that the level of new benchmark data indicated lations based on upward and that recent months would be adjusted the money stock in had been somewhat the year ending in October monetary growth over suggested by the currently rate of 5.1 per cent faster than the 3 / savings deposits other Inflows of time and published data. and the more picked up sharply, CD's than large-denomination at a rapid pace. The stock (M2)4/ grew broadly defined money CD's declined substantially volume of large-denomination outstanding paid on such CD's, to reduce the rates further as banks continued loan demand at weakening in business to the further in response currency in circulation. demand deposits plus 2/ Private been revised annually money stock has measure of the 3/ The and, among other adjustment factors incorporate new seasonal to at nonmember banks adjustments for deposits things, benchmark the last day of for 2 days a year, basis of data reported on the deposits are for member banks, the last day of December; June and rate cited is calculated figures. The growth averages of daily October 1973 relative level in basis of the daily-average on the in October 1972, to that deposits other time and savings commercial bank 4/ M plus CD's. than large-denomination
11/19-20/73 -5 banks, to the large inflows of consumer-type time deposits, and to the effect on the cost of such funds of the recent increase in marginal reserve requirements against large-denomination CD's. 5 / As a result, the bank credit proxy increased relatively little. Net deposit inflows at nonbank thrift institutions improved somewhat further in October, and the measure of the money stock that includes such deposits (M3)6/ rose appreciably after having grown at a slow pace over the third quarter. Contract interest rates on conventional mortgages and yields in the secondary market for Federally insured mortgages declined. On October 24 the Treasury announced that on October 30 and 31 it would auction up to $1.5 billion of 25-1/2 month notes, up to $2.0 billion of 6-year notes, and up to $300 million of 19-3/4 year, 7-1/2 per cent bonds to refund $3.6 billion of publicly held bonds maturing on November 15; on October 29 the Treasury set coupon rates of 7 per cent for both of the note issues. In the auctions the Treasury sold $1.5 billion of the 25-1/2 month note at an average price to yield 6.91 per cent, $2 billion of the 6-year note at an average price to yield 6,82 per cent, and $300 million of the bond at a price to yield 7.35 per cent to maturity. In addition, the Treasury raised $1.2 bills on November 9 and 12; the billion of new cash by auctioning funds were raised to meet cash needs generated by redemptions of special Treasury securities by some foreign monetary authorities, 5/ Daily-average member bank deposits adjusted to include funds from nondeposit sources. 6/ M plus time and savings deposits at mutual savings banks and at savings and loan associations.
11/19-20/73 balance of in the U.S. from the surplus in turn resulted which balances because Treasury cash and also to increase payments, Banks had Federal Reserve directly from to borrow the authority expired on October 31. in general declined interest rates Short-term market meeting on week after the Committee's in the first further market expectations because of continued in large part October 16, months in the behavior of the monetary that the weakness of recent System efforts to supply aggregates would lead to more aggressive to an easing in money market con reserves and, consequently, when the aggregates strengthened and ditions. Later, however, relatively stable, market money market conditions remained rates turned up. After the expectations changed and interest of the sale of bills to Treasury's early November announcement rates--especially those on Treasury raise new cash, short-term to or above their levels of mid-October. bills--rose further this meeting the market rate on 3-month Treasury Just before 7.50 per cent, up from a recent low of 7.02 per cent bills was on October 24 and 7.19 per cent on the day before the October meeting. rates advanced somewhat in In long-term markets interest with the rise in short the inter-meeting period in association with the expansion of demands for funds in the term rates and new public offerings of corporate markets. The volume of capital
11/19-20/73 increase was in and a further sharply in October, bonds rose of new State and local November. The volume prospect for in October, but bonds also expanded substantially government to fall off in November. volume appeared likely the data suggested October meeting, available Soon after the monetary aggregates would period the that in the October-November that reserves available ranges but rates within acceptable grow at would grow at a rate nonbank deposits (RPD's) to support private had specified because an below the range that the Committee volume of large-denomination upturn in the outstanding anticipated available later, however, not developed. Data becoming CD's had grow at rates in aggregates would that the monetary suggested action to limit such monetary acceptable ranges. System excess of that was in process by the Treasury refunding expansion was tempered developed in the Government conditions that and by the unsettled early November announce for a time after the securities market bills to raise new cash. The Federal ment of Treasury sales of per cent at the time of the which had been about 10 funds rate, 10 per cent in the days preceding October meeting, was at or above 14, member bank 5 weeks ending November meeting. In the this million, down from an average borrowings averaged about $1,446 million in the preceding 4 weeks. of $1,690 situation and that the economic Committee agreed The moderate in monetary to call for growth prospects continued
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.