December 17–18, 1973 FOMC Record of Policy Actions

FOMC minutes

12/17-18/73 issued to directive was domestic policy The following Reserve Bank of New York: the Federal information reviewed at this meeting--including The production, residential developments in industrial recent that growth in and retail sales--suggests construction, the fourth quarter. A activity is slowing in economic an appreciable rise in in activity and further weakening of the curtailment in oil are in prospect because prices payroll employment expanded supplies. In November nonfarm the unemployment rate, which had dropped in further, but rose again to about the level that had prevailed October, midyear. Wholesale prices of industrial commodities since rise sharply in November, reflecting large continued to increases for petroleum products and widespread additional advances among other commodities; farm and food prices declined further. In nearly all industrial countries abroad, concern has grown that a sustained cut in oil supplies will dis rupt economic activity. Major foreign currencies have depreciated further against the dollar, and intervention sales of dollars by foreign monetary authorities have continued. The U.S. merchandise trade balance registered a strong surplus in the September-October period. The narrowly defined money stock, following little net change over the third quarter, has grown at a rela tively rapid pace over the past 2 months. Growth in the more broadly defined money stock has also been substantial, as net inflows at banks of consumer-type time deposits have been large. Net deposit inflows at nonbank thrift institutions improved somewhat further. Bank credit expansion remained moderate in November, although business loans increased after 2 months of little or no growth. 7 the Federal Reserve announced a reduction On December from 11 to 8 per cent in marginal reserve requirements on large-denomination CD's. Most short-term market interest rates have declined somewhat on balance in recent weeks, while movements in long-term market rates have been mixed.

12/17-18/73 In light of the foregoing developments, it is the policy of the Federal Open Market Committee to foster financial conditions conducive to resisting inflationary pressures, cushioning the effects on production and employment growing out of the oil shortage, and maintaining equilibrium in the country's balance of payments. To implement this policy, while taking account of international and domestic financial market develop ments, the Committee seeks to achieve some easing in bank reserve and money market conditions, provided that the monetary aggregates do not appear to be growing excessively. Votes for this action: Messrs. Burns, Balles, Brimmer, Bucher, Daane, Holland, Mayo, Mitchell, Morris, Sheehan, and Kimbrel. Vote against this action: Mr. Hayes. Absent and not voting: Mr. Francis. (Mr. Kimbrel voted as alternate for Mr. Francis.) Mr. Hayes dissented from this action because, with the problems of inflation increasing rather than abating and with the monetary aggregates apparently growing more rapidly in 1973 than the Committee had considered desirable, he favored a con tinuation of the current degree of monetary restraint without noticeable relaxation unless signs of weakening in the economy became more apparent. He believed that, while there was not much that monetary policy could do to relieve the economic problems arising from the oil shortage, a premature easing of policy could exacerbate the problems of inflation.

12/17-18/73 Subsequent to the meeting it appeared that in the December-January period the annual rate of growth in RPD's might be close to the upper limit of the range that had been specified by the Committee and that rates of growth in M and M might exceed acceptable ranges, although a significant part of the growth in the monetary aggregates could be attributed to an unanticipated increase in deposits of foreign commercial banks at U.S. banks. On January 11 the available memberswith the exception of Mr. Francis--concurred in a recommendation by the Chairman that, in view of the sensitive state of financial markets and the general economic situation, the System aim to maintain prevailing money market conditions for the time being. 2. Authorization for domestic open market operations On January 4, 1974, a majority of Committee members voted to increase from $2 billion to $3 billion the limit on changes between Committee meetings in System Account holdings of U.S. Government and Federal agency securities specified in paragraph the authorization for domestic open market operations, 1(a) of effective immediately, for the period ending with the close of business on January 22, 1974.

12/17-18/73 Votes for this action: Messrs. Burns, Hayes, Brimmer, Holland, Mayo, Mitchell, Morris, Sheehan, and Clay. Vote against this action: Mr. Francis. Absent and not voting: Messrs. Balles, Bucher, and Daane. (Mr. Clay voted as alternate for Mr. Balles.) This action was taken on recommendation of the System Account Manager. The Manager had advised that a substantial volume of open market purchases of securities had been required in the period since the Committee's meeting on December 18, 1973, in order to offset reserve absorption resulting from market factors and that a near-term need to supply reserves was in prospect; he had further advised that strength of the dollar in foreign exchange markets suggested that foreign official sales of U.S. Treasury bills might be heavy and that the System should be in a position to acquire some of those bills while offsetting any undesired effects on bank reserves by other means. Mr. Francis dissented from this action because, in view of his concern over the continuing rapid rate of growth in the monetary aggregates, he preferred that additional reserves necessary to meet requirements over the next few weeks be obtained through member bank borrowings rather than provided through additions to System holdings of securities. Moreover, he believed that foreign official sales of Treasury bills should be absorbed in the market.