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'

BOARD OF GOVERNORS OF T H E
FE D E R A L RESERVE SYSTEM

date ,

CHAIRMAN BURNS

to,

f r o m

October 5, 1971

,

ROBERT C. H O LLA

Chuck Partee, Gordon Grimwood and
I have gottentogether on the attached
talking points on iterest rate ceilings
for your meeting of the Cost of Living
Council this afternoon.

Attachment

STRICTLY CONFIDENTIAL (FR)

1
.

,

10/5/71

The Board would prefer to see interest rates restrained through a

voluntary system, under the aegis of the proposed Intergovernmental
Committee on Interest Rates and Dividends.

(Federal Reserve, Treasury,

HUD, Commerce, SEC jand/possibly FDIC and HLB Board. )

With respect to

interest rates the President could announce the appointment of the
Committee, state that it is charged with bringing maximum public pressure
to bear to hold down or reduce interest rates, particularly those rates
paid by consumers, and state further that if this voluntary approach is
not effective, he will not hesitate to achieve the objective through
mandatory controls.

(Either amendment of the Economic Stabilization

Act of 1970, or implementation of the Credit Control Act of 1969.)

2.

If it is felt, for political reasons, that interest rates should be

covered by mandatory controls from the outset, the Board would favor the
addition of interest rates (and dividends) to Section 202 of the Economic
Stabilization Act.

However, the May 25, 1970, floor specified in that

Section is not appropriate for interest rates.

This point could be taken

care of by changing the date specified in the Act, or by adding a new
subsection to Section 202 of the Act.
The Board believes that amendment of the Economic Stabilization Act
would be preferable to the implementation of the Credit Control Act of
1969.

The latter statute contains the basis for a whole host of selective

and quantitative controls on the volume of credit and could prove highly
upsetting to the financial community.

3.

If a decision is made to include interest rates in the Economic

Stabilization Act, the Board would favor language that would permit a




voluntary approach, but with standby authority for the COLC'to makje
controls mandatory if needed.

4.

In either event, the Board would want it clearly understood that

this new 1p g i s l a t u n u X H

be used to *«-strai-n only^oolooted^

iatprpsf rates rhargpd for_<5ppri fir t-ypps of rr pd if
residential mortgages, o b y

onsumer loans ,

lending institutions, and that there

would be no attempt arjji^ferflfTTy" to limit those interest rates set in the
open market.

Attempts to control these rates would have major implications

for monetary policy and could impair the credit allocating mechanism of the
market.

The runaway credit expansion that could result from such an

effort might well destroy the Nationfs economy.

5.

The Board will be glad to provide suggested language to amend the

Economic Stabilization Act to cover interest rates, either on a "standby"
approach or on a mandatory basis.




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