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■,enclose--strictly for you? personal.ijafarmtioa--copies
of sow* spaas- aad .letters -m have writtea about aoaetary policy
siaee January. These will give you a general idea of our ap­
proach to the probiesu QT course each of these is colored by
the specific situatioa of the aooea’, but I thin* they follow
a consistent line. I could sastaariae our fe«-Iiags about current;
policy, as follows:
a) So long as we are short of reasonably full e^lojoaent,
axxt is&i&tlamzy pressures are ainlsjal, overall gov--m3Kat poiJ.07
should t e expansionary.
I ) Sspaasiaaary policy requires ’
active naves, because an up­
swing tea built-in 'stabilizing" tendencies which tighten both the
..Suaget ard the credit asarlcota.
Bucket is quite tight (like i , or &ot)j end this
leaves considerable room for acsaetary .esse. 2 M a mixture of poli­
cies has advantages for economic growth, if we succeed in achieving
full recovery,
4}' We do not underestinate the importance . f the baXaaace-ofo
pa^seats constraint. The U.S. aaist:
aim at a basic balance. At
t e same tise, ^ the Council are auch interested in international
monetary reforss which vouli . r e , our hards soaevhat and give
fefcountries breathing spells in i * ± h to adjust* 2ae present Fed is
very ccsaservative on this subject.
e) “
Jha international constraint cm U.S. interest rates is
adequately satisfied now by M M rates between 2 m d 2-1, b percent.
f) Monetary ease at the aaaeat, ve would juds6, jacaas keeping
. n t :free reserves; plentiful enough to seep the FF rate below the;
discount rate and, if the bill rate tends to rise above 2-1A percent,
belew the bill rate. Shis criterion shouM tsiae precedence over a
numerical target; for free reserves.


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g) Heserves seeded to accomplish such monetary ease should be
injected by purchases of "longs." The problem that £p,ve rise to the
Feb. 20 policy is still -with us. It is especially important to keep
loag rates dowa, aad even possibly to reduce them, because we see evi­
dence that our efforts to reduce aortgage rates are now ruaaiag into
the floor set by basic rates.
h) In general, there is ao reasoa to return to "Mils aaly.”
Long operations caa be conducted without daager of "pegg-n^. ’ Al­
though a great deal of the criticism of "bills only’ was exaggerated,
there is scae asuginal advantage ia operating clear across the maturity
spectraa, a
rsi in a auafcer of circumstances monetary objectives may not.
be achievable vithout doing so.
1) A saali decline i& the discount rate at the present time
would facilitate a policy of &am, sad ai^ht eves be appropriate inter­
nationally, ia view of the UK problaa. But there are saany ways to skin
a cat, sad if the Fed ttta%$ to do it by bigger opea-mrket purchases,
that is certainly o.k.
j) In general, - e woulda'i like to see further reductions
reserve reg,uireaeatis. le think, as as® of the msaou indicates,
the Fed should choose its tools so as to give soos attention, to
taxpayers' costs i f e this c he dona without eostproiaislng its


k) We believe ia a flexible policy, aad if the ecoaooy is suffer­
ing frta excess deiaaad sod serious inflationary pressures occur, we
would expect the Fed to move vigorously to restrictive policy. But
we doa*t think aoaetary restriction is the way to solve the problem
of gradual wsge-price creep. We tope the Fed won’ slam the brakes
oa too s o m ia this upswing. We're very m c h concerned to keep it
going when inventory building starts to peter out.
% sod large, even though there sdght be some &irior differences ia
interpretation nod intent, the above represents the general line the
President has been taking. Also, let a e add that our personal relations
with Martia have aliens been cordial aad friendly, sad at the s o a a
there is little difference between ua oa curreat policy. Soa& of his
public statement* have disturbed us, and some of ours have disturbed
him. Bit private agreeaeab is greater thaa these statements indicated.
We look forward to talking these aatters over with you ia the casing
souths and years. We’ mighty glad you are casing on the Board.

Walter W. Seller
Mr. George Mitchell
ltol 1. 55th St.
Chicago 15» Illinois

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