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MSHQfiAXBSi JPC® THE HOSXMMT Subject: Follow-sg? oa Federal Reaerve "criala" Ob the basis of a friendly but searching two-hour talk with Chalraaa Jtertia os Monday, May 29# Tobin and I~cbacittdSd that (X) your announced policy oa interest rates is la Jeopardy? I (2) this la agt because tf aa iaaiaeat tmmreal dTpolicy tor tfca Federal finmi, whieh would have raised the luu< of lanediate Kbits Boum aetioaj (3) rather, it Is a loss of conviction aad heart la qoftrtaC pwwsot policy; and {k) the aitustioa calls for aa early seating with Martin oa your return. 1. 1he aonetsry aituation, as w feared, Is very shaky. Martin argues that he can’t stea the tide of rising interest rates. 2. He la not yet abandoning tlw afttaapt. Se assured os that (•) ha will eoatiaue to try, I.e., he will con tinue to bap iafceraadlarfcs aoA long-tera toads, and (b) at the Aaa 6 aaatfng of Ids opea-Market Coeadttee, there «U1 be m rwtmtsal of this basic policy, l*a«, the red will aot return to “billa only." 3* Bat, he is vary peaeiaistic, has bo hope «f lowering Interest rates, and, indeed, doubts that the Fed ean or should atep up its purchases enough to prevent rates fna rising. fc# fa prevent the wirtmiag of aa l^ortant prop mader tho Ateialstrctlcn's recovery prograa requires — as aoea aa eonrealee&y feasible after your return fraa Sorape — the cooreaiag of tte Tacmetsry policy group" la your office to urge oa Martin the iaportanea of vigorous action and to sttffaa his bat* against the banking cnawnnity (both inside sad oatadda the Fed), which is pressing h±a to abaatoa your policy of holdlag ioaa iatarest rates uatil the recovery la consider ably further along. Valter V. Seller WWH/mtf cc: wWH Black Book Messrs. Tobin Memos for President Gordon (follow-up on p/27 memo) v.cy:?'—^ ■