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January 23, 4:00 p.m.

The first meeting of tba Preaidant with the Qttadriad took
place at 4>00 p.m. on January 23 (the Qttadriad consists of the
Secretary of the Treasury, the Chatman of the Board of Governors
of the Federal Reaerve System, Director of the Bureau of the
Budget and the Chairman of the Council of Economic Advisers).
The discussion at this meeting vaa generally rather freewheeling, vith most of It concerned about domestic economic and
financial developments, and the external payments problem. There
was general agreement that the thrust of economic policy should
be in the direction of cooling down the overheated domestic
economy, though it was recognised that this would have to be done
carefully and gradually to minimise the adverse effect of these
actions on unemployment. The Chairman of the Federal Reserve
Board said that the System had pulled a boner after the tax
Increase last year by pursuing for a tine an easier monetary
policy. This decision heavily reflected projections of their
stsff that the tax increase night produce an overkill effect,
causing substantial slack in the economy. In retrospect this
evaluation of prospects was inj&srror. The Federal Reserve,
beginning in January, has set out on a less expansive course,
their sin being an expansion in the money supply of something
like 7 percent.
In regard to the external problem the discussion largely
focused on controls over foreign investment. There was general
agreement that with prevailing conditions in the money market
the interest equalization tax probably had little deterrent
effect since eredit markets here are extremely tight already.
It was also agreed that controls over bank lending probably do
not have a major effect because of these same tight credit and
money market conditions. On controls of foreign direct investment
the issue seemed to be more complex and the Quadriad recoamended
further study before any action could be proposed.

Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102