July 16, 1974 FOMC Record of Policy Actions

FOMC minutes

To implement this policy, while taking account of the forthcoming Treasury refunding and of develop ments in domestic and international financial markets, the Committee seeks to achieve bank reserve and money market conditions that would moderate growth in monetary aggregates over the months ahead. Votes for this action: Messrs. Burns, Hayes, Black, Clay, Holland, Kimbrel, Mitchell, Sheehan, Wallich, and Winn. Vote against this action: Mr. Bucher. Absent and not voting: Mr. Brimmer. In dissenting from this action, Mr. Bucher said he favored maintaining a generally restrictive policy stance in order to combat inflation. However, he thought that that longer-run objective would be best served by seeking in the short run to maintain growth in the monetary aggregates at recent rates; in his view, further efforts to moderate monetary growth at this point would involve an unduly high risk of creating economic conditions that would necessitate a marked relaxation of policy. 2. Amendment to authorization for domestic open market operations The Committee amended paragraph 1(b) of the authorization for domestic open market operations to increase the limit on out right holdings of bankers' acceptances from $125 million to $500 million. With this amendment, paragraph 1(b) read as follows:

the open market, from or to To buy or sell in maintained at and foreign accounts acceptance dealers Reserve Bank of New York, on a cash, regu the Federal for the account of the or deferred delivery basis, lar, Bank of New York at market discount Federal Reserve with maturities of rates, prime bankers' acceptances up to nine months at the time of acceptance that (1) current shipment of goods between arise out of the or within the United States, or (2) arise countries storage within the United States of goods out of the of sale or expected to move into the under contract of trade within a reasonable time and that channels are secured throughout their life by a warehouse receipt or similar document conveying title to the underlying goods; provided that the aggregate amount of bankers' acceptances held at any one time shall not exceed $500 million. Votes for this action: Messrs. Burns, Hayes, Black, Bucher, Clay, Holland, Kimbrel, Mitchell, Sheehan, Wallich, and Winn. Votes against this action: None. Absent and not voting: Mr. Brimmer. This action was taken on recommendation of the Account Manager, who reported that recent purchases had brought System holdings of bankers' acceptances close to the $125 million limit. The Manager noted that purchases of acceptances were particularly useful as a supplement to other reserve-supplying techniques under current cir cumstances, when the volume of Government securities available in the market was often limited, and in the Committee's current policy dis cussion earlier in this meeting, it had been suggested that the Manager give greater weight to the purchase of bankers' acceptances in the process of supplying reserves. Because the volume of bankers' accep tances outstanding had risen sharply over the past decade, the new limit was less than 5 per cent of outstandings, as the previous limit had been when it was established in 1964.

in Federal agency issues 3. Revision of guidelines for operations On recommendation of the Manager, the Committee amended the guidelines for the conduct of operations in securities issued by Federal agencies to delete those previously numbered 4 and 7, and to renumber as 4, 5, and 6 those previously numbered 5, 6, and 8. The guidelines deleted were as follows: 4. System holdings of maturing agency issues will be allowed to run off at maturity. 7. No new issues will be purchased in the secondary market until at least 2 weeks after the issue date. Votes for this action: Messrs. Burns, Hayes, Black, Bucher, Clay, Holland, Kimbrel, Mitchell, Sheehan, Wallich, and Winn. Votes against this action: None. Absent and not voting: Mr. Brimmer. Initial guidelines for operations in agency issues had been approved on August 21, 1971, with the understanding that they would be subject to review and revision as experience was gained, and revisions had been made on several subsequent occasions. At this meeting the Committee concurred in the Manager's judgment that experience had demonstrated both the absence of need for the technical restrictions embodied in the two guidelines in question and the advantages of their deletion. With respect to the latter, it was noted that the deletion of guideline 4 would make it possible to avoid the negative impact on reserves that automatically ensued when maturing issues were redeemed, and

that the deletion of guideline 7 would increase the availability of agency issues for purchase by the System, since recent issues were the most actively traded in the market. These changes brought System operating practices for agency issues more closely in line with those for Treasury securities. As a result of these changes, the guidelines for operations in agency issues read as follows: 1. System open market operations in Federal agency issues are an integral part of total System open market operations designed to influence bank reserves, money market conditions, and mone tary aggregates. 2. System open market operations in Federal agency issues are not designed to support individual sectors of the market or to channel funds into issues of particular agencies. 3. System holdings of agency issues shall be modest relative to holdings of U.S. Government securities, and the amount and timing of System transactions in agency issues shall be deter mined with due regard for the desirability of avoiding undue market effects. 4. Purchases will be limited to fully taxable issues for which there is an active secondary market. Purchases will also be limited to issues outstanding in amounts of $300 million or over in cases where the obligations have a maturity of five years or less at the time of issuance, and to issues outstand ing in amounts of $200 million or over in cases where the securities have a maturity of more than five years at the time of issuance. 5. System holdings of any one issue at any one time will not exceed 20 per cent of the amount of the issue outstanding. of the issues of any one agency will not Aggregate holdings exceed 10 per cent of the amount of outstanding issues of that agency. 6. All outright purchases, sales and holdings of agency issues will be for the System Open Market Account.