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T H E CHAIRMAN OF T H E
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WASHINGTON

August 18, 1964

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MEMORANDUM FOR THE PRESIDENT
Subject: A Slight Turn of the Monetary Screw

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1.

Bill Martin called me this evepng to say that thejOpen Market
Committee today moved, by a narrow majority, to slightly tighter
money*

2.

Specifically, they are cutting their "free reserve1 target from $100
1
million to $50 million,

3.

The basis for the move is the balance-of-payments preliminary "flash"
figures for July and August indicate a considerable deficit. The idea
is to cut down just a bit on available funds and firm up short-term
interest rates a bit to discourage outflows of funds*

4.

B ill said that there was considerable difference of opinion on the Open
Market Committee as to whether this would really have the intended
result, and he added that no one has firm proof one way or the other.

5.

He also noted that they are going to keep this very quiet, so that "the
market"
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won't know that it's being done

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won't begin to read into it any fears by the Fed of over­
heating on the domestic front.

6.

My own judgment is that it's too small a change to do much good on the
international front, and, as it gradually leaks out, it may lead - - a t
least temporarily - - to slight jitters on the domestic front.

7.

B ill says if it does, they could quickly reverse it.

8.

My feeling is that it would have been better not to do it in the first place,
though I admit it's a close question.




Walter W. Heller

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