January 21–22, 1974 FOMC Record of Policy Actions

FOMC minutes

1/21-22/74 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 the forthcoming Treasury financing and of inter national and domestic financial market developments, the Committee seeks to achieve bank reserve and money market conditions consistent with moderate growth in monetary aggregates over the months ahead. Votes for this action: Messrs. Burns, Balles, Brimmer, Bucher, Daane, Holland, Mayo, Mitchell, Morris, and Sheehan. Votes against this action: Messrs. Hayes and Francis. In dissenting, both Mr. Hayes and Mr. Francis indicated that they favored no change in the Committee's longer-run objectives for growth in the monetary aggregates, and Mr. Hayes also was opposed to a range of tolerance for the Federal funds rate that was skewed to the low side of the range that had prevailed in recent days. In Mr. Hayes' view, the probabilities favored a relatively mild business slowdown in 1974 as a whole, and in light of the rapid monetary growth in recent months, the Committee should lean against the strong inflationary pressures that remained the major economic problem. Mr. Francis believed that the actual and prospective slowdown in economic activity resulted wholly from capacity, supply, and price-distorting constraints, rather than from a weakening in demand, and that any easing in monetary policy would increase inflationary pressures without expanding real output or reducing unemployment.

1/21-22/74 2. Ratification of earlier action ratified the action By unanimous vote, the Committee for which a majority of the members had voted on January 4, 1974, increasing 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 1(a) of the authorization for domestic open market operations, effective for the period from January 4 through the close of business on January 22, The action in question had been 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. 3. Authorization for foreign currency operations The Committee approved an increase from $2 billion to $3 billion in the System's swap arrangement with the Bank of Italy,

1/21-22/74 to paragraph 2 of the authorization and the corresponding amendment for foreign currency operations, subject to the understanding that upon approval by the Subcommittee the action would become effective Chairman and Vice Chairman of the Committee (consisting of the of the Board of Governors) designated in and the Vice Chairman the Committee's rules of procedure, after consultation with the U.S. Treasury. Votes for this action: Messrs. Burns, Hayes, Balles, Brimmer, Bucher, Daane, Francis, Holland, Mayo, Mitchell, Morris, and Sheehan. Votes against this action: None. On January 29, 1974, the Subcommittee approved the indicated increase, effective February 1, 1974. Accordingly, as of the latter date, paragraph 2 of the authorization read as follows: The Federal Open Market Committee directs the Federal Reserve Bank of New York to maintain reciprocal currency arrangements ("swap" arrangements) for the System Open Market Account for periods up to a maximum of 12 months with the following foreign banks, which are among those designated by the Board of Governors of the Federal Reserve System under Section 214.5 of Regulation N, Relations with Foreign Banks and Bankers, and with the approval of the Committee to renew such arrangements on maturity:

1/21-22/74 Amount of arrangement (millions of Foreign bank dollars equivalent) Austrian National Bank 250 National Bank of Belgium 1,000 Bank of Canada 2,000 National Bank of Denmark 250 Bank of England 2,000 Bank of France 2,000 German Federal Bank 2,000 Bank of Italy 3,000 Bank of Japan 2,000 Bank of Mexico 180 Netherlands Bank 500 Bank of Norway 250 Bank of Sweden 300 Swiss National Bank 1,400 Bank for International Settlements: Dollars against Swiss francs 600 Dollars against other European currencies 1,250 This action was taken on the grounds that it would prove helpful in coping with possible exchange market pressures on the the oil crisis, and thus would contribute to lira arising from international monetary stability.