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r f j J l J h * October IS, 1<M»* FOR THE HONORABLE fVILUAfti UeC. &:AAtt? Since our meeting os Tuesday afternoon, Xhave gives further thought to the prehleni of implementing a somewhat easier «.».anet*ry policy* and I thought it might he worthwhile te record sozne reflections ea the subject# 1. A * you kaow, the Council believes that improved attitudes toward the dollar* plua the stubborn sluggishness of the dotneeiic «con;3»i3fl make iota* m w # toward greater Jisonetary ease highly desirable. Especially since no farther action can he expected on th« fiscal front for many months, our reliance on the monetary instrument to bridge the gap is unusually g m t . 2. Therefore, we are gratified at your projected move in the direction of greater ease. 1. However* we feel it naay he preferable to reactivate vigorously the policy of open market purchases of long-term Treasury securities that was put into effect last year. Such a policy would ^ut direct downward pressure on the long-term interest rates that are crucial for domestic economic activity* To the extent that such purchases pro duced declines la the short-terfn rates that are important for balance-ofpayments reasoss. the effects could he offset by sales of short-term securities from the System portfolio* Such a policy could he conducted forcefully and at the same time could he co&tinuously adjusted to changing financial and economic conditions. I hope you and your colleague* on the Board w ill weigh this line of action as an alternative to a reduction of reserve requirements. 4. If a reduction in reserve requirements is put into effect, we hope that it will he followed by further measure* to supply reserves in response to the seasonal increase in credit demand, so that it will result in a net longer-term stimulus through addition to the credit supply.
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