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Meeting of Federal Open Market Committee
August 24,
1971
MINUTES OF ACTIONS
A meeting of the Federal Open Market Committee was held in
the offices of the Board of Governors of the Federal Reserve System
in Washington, D. C., on Tuesday, August 24, 1971, at 9:30 a.m.
As
indicated below, only a limited number of staff members were in
attendance during the first part of the meeting.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Burns, Chairman
Hayes, Vice Chairman
Brimmer
Clay
Daane
Kimbrel
Mr. Maisel
Mr. Mayo
Mr.
Mr.
Mr.
Mr.
Mitchell
Morris
Robertson
Sherrill
Messrs. Coldwell, Eastburn, and Swan, Alternate
Members of the Federal Open Market Committee
Messrs. Heflin, Francis, and MacLaury, Presidents
of the Federal Reserve Banks of Richmond,
St. Louis, and Minneapolis, respectively
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
1/
Holland, Secretary
Broida, Deputy Secretary
Molony, Assistant Secretary
Hackley, General Counsel
1/
Partee, Economist
Solomon, Associate Economist
Holmes, Manager, System Open Market Account
Coombs, Special Manager, System Open
Market Account
Left the meeting at the point indicated.
8/24/71
-2
Mr. MacDonald, First Vice President, Federal
Reserve Bank of Cleveland
Mr. Katz, Adviser, Division of Inter
national Finance, Board of Governors 1/
Messrs. Bryant and Pizer, Associate
Advisers, Division of International
Finance, Board of Governors
By unanimous vote, the Committee ratified the actions of
members on August 9 and 11, 1971, respectively, approving increases
in the Federal Reserve swap lines with the National Bank of Belgium
from $500 million to $600 million and with the Swiss National Bank
from $600 million to $1 billion, and the conforming amendments to
paragraph 2 of the authorization for System foreign currency opera
tions, with these several actions effective on August 12, 1971.
As a result of these actions, paragraph 2 of the authoriza
tion for System foreign currency operations was amended, effective
August 12, 1971, to read as follows:
The Federal Open Market Committee directs the
Federal Reserve Bank of New York to maintain reciprocal
currency arrangements ("swap" arrangements) for System
Open Market Account for periods up to a maximum of 12
months with the following foreign banks, which are among
those designated by the Board of Governors of the Federal
Reserve System under Section 214.5 of Regulation N, Rela
tions with Foreign Banks and Bankers, and with the approval
of the Committee to renew such arrangements on maturity:
Foreign bank
Amount of
arrangement
(millions of
dollars equivalent)
Austrian National Bank
National Bank of Belgium
1/
Entered the meeting at the point indicated.
200
600
8/24/71
Foreign bank
Amount of
arrangement
(millions of
dollars equivalent)
Bank of Canada
National Bank of Denmark
Bank of England
Bank of France
German Federal Bank
Bank of Italy
Bank of Japan
Bank of Mexico
Netherlands Bank
Bank of Norway
Bank of Sweden
Swiss National Bank
Bank for International Settlements:
Dollars against Swiss francs
Dollars against authorized European
currencies other than Swiss francs
1,000
200
2,000
1,000
1,000
1,250
1,000
130
300
200
250
1,000
600
1,000
By unanimous vote, the System open market transactions in
foreign currencies during the period July 27 through August 23,
1971, were approved, ratified, and confirmed.
By unanimous vote, renewal of a $35 million System drawing
on the National Bank of Belguim maturing September 10,
1971,
was
authorized.
By unanimous vote, the Committee approved an increase in
the Federal Reserve swap line with the Swiss National Bank from
$1 billion to $1,333 million, and the conforming amendment to
paragraph 2 of the authorization for System foreign currency oper
ations, to become effective if and when Chairman Burns determined
that such action was in the national interest.1 /
1/ Mr.
Katz was present during the discussion of this matter.
8/24/71
Secretary's Note: After
subsequent discussions among
Federal Reserve, Treasury,
and Swiss National Bank offi
cials,
it was determined that
alternative means for accom
plishing the objective in view
Accord
would be preferable.
ingly, the increase in the
swap line was not effectuated.
The meeting then recessed and reconvened at 2:25 p.m.
In
attendance were those present at the morning session as well as
the following:
Mr. Bernard, Assistant Secretary
Messrs. Axilrod, Eisenmenger, Garvey,
Scheld, Taylor, and Tow, Associate
Economists
Mr. Altmann, Assistant Secretary, Office
of the Secretary, Board of Governors
Mr. Cardon, Assistant to the Board of
Governors
Mr. Coyne, Special Assistant to the Board
of Governors
Mr. O'Connell, General Counsel, Board of
Governors
Mr. Williams, Adviser, Division of Research
and Statistics, Board of Governors
Messrs. Keir and Pierce, Associate Advisers,
Division of Research and Statistics,
Board of Governors
Mr. Baker, Economist, Government Finance
Section, Division of Research and
Statistics, Board of Governors
Miss Eaton, Open Market Secretariat
Assistant, Office of the Secretary,
Board of Governors
Miss Orr, Secretary, Office of the
Secretary, Board of Governors
Mr.
Craven, Senior Vice President,
Reserve Bank of San Francisco
Federal
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8/24/71
Messrs. Sternlight, Willes, Hocter,
Snellings, Jordan, and Green, Vice
Presidents, Federal Reserve Banks of
New York, Philadelphia, Cleveland,
Richmond,
St. Louis, and Dallas,
respectively
Mr. Kareken, Economic Adviser, Federal
Reserve Bank of Minneapolis
Mr. Meek, Assistant Vice President,
Federal Reserve Bank of New York
By unanimous vote, the minutes of actions taken at the
meeting of the Federal Open Market Committee on July 27,
1971,
were approved.
The memorandum of discussion for the meeting of the
Federal Open Market Committee held on July 27,
1971,
was
accepted.
By unanimous vote, the open market transactions in
Government securities, agency obligations, and bankers' accep
tances during the period July 27 through August 23,
1971,
were
approved, ratified, and confirmed.1/
By unanimous vote, the Federal Reserve Bank of New York
was authorized and directed, until otherwise directed by the Com
mittee, to execute transactions in the System Account in accor
dance with the following current economic policy directive:
The information reviewed at this meeting indicates
that real output of goods and services has been expanding
moderately, that unemployment has remained substantial,
and that prices and wages have been rising rapidly on
1/Mr. Partee left
following matter.
the meeting before the discussion of the
8/24/71
average in recent months. However, the economic program
announced by the President on August 15 enhances pros
pects for higher rates of growth in real economic
activity, increased job opportunities, and curtailed
inflationary pressures. In July inflows of consumer
type time and savings funds slowed markedly at banks
but inflows to nonbank thrift institutions continued
large. Growth in the narrowly defined money stock
remained rapid in July, but growth in broadly defined
money slowed and bank credit continued to expand at
Interest rates on
about the second-quarter pace.
most types of market securities declined sharply in
the days following the announcement of the new program.
The deficit in the U.S. balance of payments reached
extraordinarily large proportions in early August,
mainly reflecting an acceleration of capital outflows
related to expectations of shifts in foreign exchange
rates. Following the suspension of convertibility
of the dollar into gold and other reserve assets,
major European central banks discontinued foreign
exchange market operations for a week. When most of
the European markets were reopened on August 23 these
central banks pursued diverse exchange rate policies,
but all allowed at least some types of market transac
tions to take place at rates of exchange for their
currencies relative to the dollar above previous upper
In light of the foregoing develop
intervention limits.
ments, it is the policy of the Federal Open Market
Committee to foster financial conditions consistent
with the aims of the new governmental program, includ
ing sustainable real economic growth and increased
employment, abatement of inflationary pressures, and
attainment of reasonable equilibrium in the country's
balance of payments.
To implement this policy, the Committee seeks to
achieve more moderate growth in monetary and credit
aggregates over the months ahead. System open market
operations until the next meeting of the Committee shall
be conducted with a view to achieving bank reserve and
money market conditions consistent with that objective.
By unanimous vote, paragraph 1(a) of the continuing author
ity directive to the Federal Reserve Bank of New York with respect
to domestic open market operations was amended to read as follows:
8/24/71
To buy or sell U.S. Government securities and securi
ties that are direct obligations of, or fully guaranteed
as to principal and interest by, any agency of the United
States in the open market, from or to securities dealers
and foreign and international accounts maintained at the
Federal Reserve Bank of New York, on a cash, regular, or
deferred delivery basis, for the System Open Market
Account at market prices and, for such Account, to exchange
maturing U.S. Government and Federal agency securities
with the Treasury or the individual agencies or to allow
them to mature without replacement; provided that the
aggregate amount of U.S. Government and Federal agency
securities held in such Account at the close of business
on the day of a meeting of the Committee at which action is
taken with respect to a current economic policy directive
shall not be increased or decreased by more than $2.0 bil
lion during the period commencing with the opening of
business on the day following such meeting and ending
with the close of business on the day of the next such
meeting.
In connection with the foregoing action, the Committee
approved certain guidelines for the conduct of System operations in
the securities of Federal agencies.
Secretary's Note: It was understood
that decisions with respect to the
implementation of outright operations
in agency issues, and the announce
ment thereof, would be made by Chair
man Burns after consultation with the
System Account Manager.
It was agreed that the next meeting of the Federal Open Mar
ket Committee would be held on Tuesday, September 21, 1971, at
9:30 a.m.
The meeting adjourned.
Secretary
@FedFRASER