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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 on Tuesday, December 17, 1963, at 9:30 a.m.


Martin, Chairman
Hayes, Vice Chairman

Messrs. Hickman, Wayne, Shuford, and Swan, Alternate
Members of the Federal Open Market Committee
Messrs. Ellis, Bryan, and Deming, Presidents of the
Federal Reserve Banks of Boston, Atlanta, and
Minneapolis, respectively
Mr. Sherman, Assistant Secretary
Mr. Kenyon, Assistant Secretary
Mr. Hackley, General Counsel
Mr. Noyes, Economist
Messrs. Baughman, Brill, Eastburn, Furth, Garvy,
Green, Holland, Koch, and Tow, Associate
Mr. Stone, Manager, System Open Market Account
Molony, Assistant to the Board of Governors
Cardon, Legislative Counsel, Board of Governors
Broida, Assistant Secretary, Board of Governors
Williams, Adviser, Division of Research and
Statistics, Board of Governors
Mr. Yager, Chief, Government Finance Section,
Division of Research and Statistics, Board
of Governors
Miss Eaton, Secretary, Office of the Secretary,
Board of Governors


-2Messrs. Sanford, Mann, Ratchford, Jones, and
Grove, Vice Presidents of the Federal
Reserve Banks of New York, Cleveland,
Richmond, St. Loui, and San Francisco,
Mr. Brandt, Assistant Vice President of the
Reserve Bank of Atlanta
Mr. Willis, Economic Adviser, Federal Reserve
Bank of Boston
Mr. Kareken, Economic Consultant, Federal
Reserve Bank of Minneapolis
Mr. Meek, Manager, Securities Department,

Federal Reserve Bank of New York
Upon motion duly made and seconded,
and by unanimous vote, the m .nutes of the
meetings of the Federal Open Market Committee held on November 12 and November
26, 1963, were approved.
Mr. Mills asked whether it was the thought of the Committee
that the decision taken at the December 3 meeting on the procedures
for allocation of securities in the Open Market Account should be
treated as perfunctorily as it was in the draft minutes, which simply
cited the fact that the revised procedures had been approved.
After discussion of this point, it was noted that the draft
minutes for December 3 were still open for review and that they could
be modified to such extent as might be considered appropriate.


this connection, Mr. Sherman observed that a fuller record of the
discussion of the question of possible deficiencies in Reserve Bank
reserves against note and deposit liabilities would be included in the
minutes of the meeting of the Federal Reserve Bank Presidents with the
Board of Governors that took place on the afternoon of December 3.



Before this meeting there had been distributed to the members
of the Committee a report from the Special Manager of the System Open
Market Account on foreign exchange market conditions and on Open Market
Account and Treasury operations in foreign currencies for the period
December 3 through December 11, 1963, and a supplementary report
covering the period December 12 through December 16, 1963.

Copies of

these reports have been placed in the files of the Committee.
Supplementing the written reports, Mr.

Sanford commented that

the Treasury gold stock this week should remain unchanged for the
eighteenth consecutive week.

It was likely, however, that the following

week would show a sizable decline in order to provide for gold sales
expected later this month and in January, which should serve as a
reminder that the balance of payments problem was far from being

In the two weeks since the meeting of December 3 Russian

sales of gold had been reduced to comparatively small figures.

So far

in December, the London gold pool had accumulated only a small amount
of gold.
Since the December 3 meeting, Mr. Sanford continued, the System's

drawings on the swap arrangement with the Bundesbank had been increased
further by a total of $34 million, making the outstanding amount $136


The Account's gross debtor position on all swaps was now $376

million and its net debtor position was $326 million.

Year-end window dressing needs of German banks continued during
the past two weeks--although there was some evidence in the past few
days of their having passed their peak-.-but capital continued to flow
into Germany and that country continued to have a favorable trade balance.
Of the Account's drawings of $34 million in the past two weeks $28 million
had gone to absorb part of the Bundesbank's takings of dollars, and $6
million had been used for operations in the New York market.

With the aid

of an expected large German military goods payment later in the month,
sizable progress was anticipated in reducing the drawings on the German
swap arrangement.

The German mark had fluctuated only between $0.2516-3/4

and $0.2517-3/8 in the past two weeks, a bit away from its ceiling, and
today the mark had eased a bit.
The franc had been at or close to its effective ceiling,

Sanford said, reflecting in part year-end liquidity requirements of

Swiss banks for Swiss francs.

To aid in handling this situation, the

Swiss National Bank since December 10 had been buying spot dollars and
selling t..em for one-month forward delivery, meanwhile laying them off
to the Bank for International Settlements on a dollar/gold swap.


noted parenthetically that the U. S. Treasury had been extending maturing
Swiss franc contracts with Swiss commercial banks.
Mr. Sanford said that for a short while the French franc had
been a bit off its ceiling, probably reflecting a development having to
do with Euro-dollars and other European currencies about which he would
speak later.


-5The Canadian dollar, which had been holding steady, had tended

to ease of late, and the Bank of Canada had sold U. S. dollars to
support the rate.

This, together with their expectation that they would

be further sellers to provide U. S. dollars for conversion of year-end
Canadian dividends and for year-end settlements, gave the Account an
opportunity to acquire sufficient Canadian dollars from the Bank of
Canada to permit complete retirement on December 16 of the swap drawings
equivalent to $20 million which were entered into in the latter part of
November because of the tragic event of that period.
Mr. Sanford reported that the Euro-dollar market had been subject
to considerable pressures in December as a result of the approach of the
year end and several extraordinary developments, and rates had moved up-in the case of the 90-day maturity by 1/2 per cent.

It now appeared

that the Stinnes and Ira Haupt situations, in which Euro-dollars had
been providing some financing, had resulted in the development of a more
questioning attitude on the part of some who heretofore had deposited
dollars in the Euro-dollar market; there had even been some indications
that U. S. corporations, to some unknown degree, had been pulling back


A further indication of the pull-back of funds, which always

occurred, however, to some degree at the year end, was that Japaneses
banks had had $100 million of Euro-dollars withdrawn from them, with
closely corresponding effects on Japanese official reserves.



Mr. Sanford said the French development that he had mentioned
earlier had taken the form of a warning by the Governor of the Bank of
France to the French market calling their attention to several factors,
including (1) that operations effected on the Euro-currency markets,
entailing as they did serious risks, could not be considered as current
transactions in the foreign exchange markets but only as credit operations which must be handled with at least the same care as operations
transacted for the benefit of French residents; (2) the duration of
investments was to be adapted to that of the borrowings; (3) it was well
known that some countries, and in some countries some business enterprises, made excessive, and therefore generally dangerous, use of all
funds borrowed abroad.

The Governor of the Bank of France pointed out

in the warning that the French authorities had taken the necessary

measures to prohibit such errors by French enterprises.

French banks

also had to abstain in their own interest, as well as in the general
interest, from granting excessive facilities to banks or business
enterprises established abroad, about which they did not always have

sufficient information, especially since it also was known that the
exchange thus lent was often re-lent to third parties in that same
country or elsewhere.

Mr. Sanford added that there had been criticism

in France of the tenor of the warning, since it was held that only one
French bank had suffered losses.

Mr. Daane mentioned that there had been confirmation in Europe
during the past week, particularly from the Japanese, that the flow of
new funds into the Euro-dollar market was drying up, and he asked
whether this had been reflected in the U. S. balance of payments figures.
Mr. Sanford replied that it was not possible to isolate the effects of
such a development in the weekly balance of payments reports.

It was

reflected, however, in transactions in the New York money market; the
Japanese government, for instance, was selling U. S. Treasury bills to
provide funds for Japanese commercial banks to repay Euro-dollar loans
they were unable to renew.
Thereupon, upon motion duly made and
seconded, and by unanimous vote, the System
Open Market Account transactions in foreign

currencies during the period December 3
through December 16, 1963, were approved,
ratified, and confirmed.

Sanford recommended that the swap arrangement with the Bank

of Canada in the amount of $250 million, which matured December 27, 1963,
be renewed.

Noting that this arrangement had been renewed every three

months since its inception in June 1962, he recommended placing it on a

one-year basis while maintaining at three months the drawing provision
which was, of course, subject to mutual agreement.

He indicated that

this would tend to simplify procedures and to remove some existing confusion when both the swap arrangement and the drawing provision were on a
three-month basis, and that it would be a further indication to outside



observers that there was indeed a strong and continuing solidarity
between the central banks.

It was believed that the Bank of Canada

would find a one year renewal of the swap arrangement satisfactory,
Mr. Sandford said, and he noted that the arrangement with the Bank of
England was for a one year period,
Mr. Mills commented that a one year arrangement with Canada or
any other country might well extend through a period in which a change
in government occurred, and the arrangement would thus be fixed for the
advantage of a succeeding government whose thinking and policies might
be of a quite different kind from those of the government in office at
the time the arrangement was made.
Mr. Sanford agreed that such a situation could arise.

But, he

observed, each drawing was limited to a period of three months and would
be entered into only on mutual agreement of the parties.

Thus, the

System as well as the other central bank involved had to agree to a
drawing before

it could be made.

Mr. Ellis asked whether the logic supporting the extension of
the Canadian arrangement to a one year perioc' would apply to all swap

Mr. Sanford expressed the view that it would apply to a

number of them, but not necessarily to all.

He felt the Committee might

not want to move to a one year basis for some of the newer arrangements
under which there as yet had been little experience, but it probably
would be thought desirable to extend others to one year as the occasion



A one year basis indicated considerably more solidarity between

the central banks and, incidentally, it substantially reduced the amount
of paper work required.
Mr. Hickman suggested that an intention to change the amount of
a particular arrangement might provide a reason for not lengthening its
period, and Mr. Sanford agreed.

However, he noted, in the past the

amounts of particular 3- and 6-month arrangements had been changed during
the period of the arrangement.
Mr. Mills commented that while it was theoretically possible to
refuse tc agree to a particular drawing under a one year swap arrangement,
to do so might lead to a charge of bad faith, since a commitment for one
year had been made.

He did not question extension of the Canadian

agreement, but he thought that publication of the terms of the arrange-

ments would invite invidious comparisors if some were on a long-term
basis and others were not.

Such a situation would be impolitic and

difficult to handle, in his judgment.
Chairman Martin commented that the Committee had already started
in this direction by placing its arrangement with the Bank of England on
a one year basis.
Mr. Hayes considered it likely that the Committee would eventually
want to go to a one year basis for many of the agreements, but he saw no
necessity for determining the matter at this time.


-10The Chairman then suggested that the Committee vote on the

recommendation with respect to renewing the Canadian arrangement for
a one year period, with the understanding that no precedent would be
established if the Committee approved the proposal.
Thereupon, renewal of the swap arrangement with the Bank of Canada for $250 million
for a one year period was approved.
Mr. Mitchell commented that frequently the recommendations of
the Special Manager came to the Committee without advance notice.
Sometimes this was unavoidable, but on other occasions it would be
possible for the Committee to be advised in advance that a certain
recommendation was going to be made.

It. seemed to him that with such

advance notice the Committee could dispose of the Special Manager's
recommendations more effectively and expeditiously.
Chairman Martin suggested that the Special Manager work with
the Committee Secretariat to see what could be done along such lines.
In further remarks, Mr. Sanford advised, for reasons which he
outlined, that there was no progress to report on the matter of a possible
increase in the swap arrangement with the Bank of France.
Mr. Sanford also mentioned that drawings on the Netherlands Bank
swap arrangement of $20 million and $60 million equivalent in guilders
would mature on December 27, 1963, and January 2, 1964, respectively, and
drawings on the B.I.S. of $50 million and $25 million equivalent in Swiss
francs would mature December 30, 1963, and January 7, 1964, respectively.



To the extent that it was not possible to reduce these drawings by

their respective maturity dates, it would be necessary to seek
renewal for further three-month periods.

These would be the first

renewals of these particular drawings.
In reply to a question, Mr. Sanford said the drawings in
question originally had been made in late September and early October,
and earlier drawings of guilders and Swiss francs had been repaid
before these drawings were made.
The proposed renewal of the drawings,
to such extent as might be necessary, was
noted without objection.
Before this meeting there had been distributed a report from
the Manager of the System Open Market Account covering open market
operations in U.S. Government securities and bankers' acceptances for

the period December 3 through December 16, 1963.

A copy of this

report has been placed in the files of the Committee.
In supplementation of the written report Mr. Stone commented
as follows:
There is little to add to the written reports regarding
developments in the brief period since the last meeting. In
this period the money market coped quite readily with what
has sometimes been a period of considerable seasonal strain.
In some recent years, the advent of December dividend and tax
dates has thrown a large volume of financing needs back on
the banks as dealer repurchase agreements with corporations



ran off, forcing the dealers to turn in size to the banks
which were at the same time experiencing direct pressure
from increased business loans around the tax date. This
time, the money market banks were well prepared for these
additional demands, and perhaps even over-prepared for the
demands that emerged in the first half of the period, with
the result that the money market was unexpectedly easy.
Also contributing to the facility with which the market
handled the seasonal demands made upon it this year is the
fact that dealer positions and use of credit had recently
been running on the order of $800-$900 million less than
a year ago.
Later in the interval a firmer tone returned to the
money market, and yesterday--the quarterly corporate tax
date--there was evidence of some sizable pressure of the
sort that had been anticipated earlier. Thus, where the
System had been absorbing reserves through the first part
of the period, in order to help restore a firmer tone, the
System supplied a sizable volume of reserves yesterday to
provide some lubrication over the tax date itself.
The temporary easing in the money market had little
impact in the securities markets beyond the Treasury bill
area. Bills edged lower in rate through the first half
of the interval and then returned to about the same level
as two weeks ago, with the three-month issue remaining in
a range of 3.50-3.55 per cent. The average issuing rates
in yestercay's auction of about 3.54 per cent and 3.68 per
cent for the 3- and 6-month bills, respectively, were within a basis point of the rates two weeks ago.
In the bond market, as the shock of the assassination
receded further in time, the market gave increasing attention
to economic factors that are expected to affect interest
rate. in the months ahead. In particular, attention has been
given to the continuing indications of good business, rising
loan demand, and the prospect that an early tax cut may both
stimulate business and temporarily enlarge the Treasury's
deficit. The market has also noted the recent rise in yields
on high-grade corporate bonds. Finally, the market remains
aware that the balance of payments problem is still far from
solved. The downward drift in prices in response to these
factors has been quite orderly, however, with no great
pressure of selling reported.
The corporate and municipal bond markets showed little
change in price during the recent period, following the
declines that had occurred earlier. Investors showed
selective interest in new issues, with some of the larger



offerings winning only fair response. Considerable
attention is focusing on two major negotiated offerings
that are expected to reach the market today--$150
million of Sinclair Oil bonds and $100 million of
Bankers Trust capital notes. Rate expectations for the
Bankers Trust issue are in the neighborhood of 4.45-4.50
per cent, while the Sinclair bonds are expected to come
at a slightly higher level.
Near-term prospects for Treasury financing include
the sale of another billion dollar one-year bill,
probably on December 30; replacement of the $2.5 billion
maturing January 15 bills--possibly with a like amount of
June tax bills; and the raising of anot er $750 million-$1 billion of cash in mid-January--perhaps through a note
or short bond. Toward the end of the month, the Treasury
will choose the terms of the refunding of its February 15
maturities, of which a little over $4 billion are publicly
Thereupon, upon motion culy made and
seconded, and by unanimous vote, the open
market transactions in Government securities and bankers' acceptances during the
period December 3 through December 16,
1963, were approved, ratified, and
Chairman Martin then called for the staff economic and
financial reports, supplementing the written reports that had been
distributed prior to the meeting, copies of which have been placed
in the files of the Committee.
Mr. Brill commented on economic conditions as follows:
Optimism about the economic outlook continues to
abound, in fact to increase with the apparent improvement
in prospects for the tax cut. It is getting more and more
difficult these days to characterize our profession as the
"dismal science."
This nigh-universal optimism carries with it some
obvious dangers. When everyone is convinced that there
is "no way to go but up" such an orientation can easily
spill over into attitudes towards wages and prices.
Thus, even with unutilized capacity and manpower, we have



been getting continued testing of markets by businessmen
through scattered price increases--fortunately, not all of
which hold--and mutterings from labor leaders about the
kinds of contracts they will fight for next year.
In the context of such exuberant psychology, it may

be salutary, as an antidote, to stress some of the
deviations and lapses from progress, when and where they
occur. The wage and price stability we have enjoyed in
this expansion is explainable principally in terms of
fundamental supply and demand relationships, but I am sure
the occasional pauses in the uptrend have also been
influential in preserving economic sobriety.. Hesitations
in the pace of expansion have introduced just enough
uncertainty to help keep inflationary psychology from
reviving, at least outside of the stock market and some
parts of the real estate market.

November can fairly be described as one such pause in
the general updrift, even if its import has not yet been
fully assimilated by the optimists. There was not much
economic progress last month.

Industrial production edged

up only slightly, not enough to move the index out of the
rounded 127 level achieved in October. Retail sales also
remained at about October levels, if one makes rough
allowance for the effects of the national tragedy on
November 22. Employment remained essentially unchanged
and the unemployment rate bounced up. Construction
activity was high but no higher than in October, and
businessmen reported that their current spending for plant
and equipment was not rising as much as they had anticipated
three months ago and that they foresaw no rise from present
levels in the immediate future.
November developments, then, should be sobering, and
even more so if put in a somewhat longer perspective.

Industrial production at 127 is, after all, only barely
higher than the index for July.

Nonfarm employment has

grown quite moderately since July, and retail sales in,
November were also no higher than mid-year levels. If it
were not for the continuing $8 or $9 billion per quarter
gain in total GNP, one might venture a judgment that the

pause in economic expansion really began back at midyear.
Momentum in the broad GNP aggregate has been maintained in
large part by exceptional--perhaps unsustainable--increases
in both private and State and local government construction
activity, and by a continued rise in consumer and Government
.spending for services.



I would not want to overdo the contrast between
leveling off in the industrial sector of the economy and
continued expansion in other components of total economic
activity. We could be the victims of inadequate or
inconsistent seasonal adjustments among the various measures.
One should note a similar divergence between the production
index and the broader GNP measure in the latter part of
1962, which was followed by an upsurge in production

earlier this year. One should also note that in both years
the late summer and fall credit figures--particularly
business loan demands--appeared more consistent with the
expansive pattern of GNP than with the stable pattern of

the production index.
Whether the recent course of the economy actually has
been sidewise or moderately up may be debatable, but this
is of less importance than the clear evidence that we have
not been in a strong boom. Given only modest progress at
best, in recent months, and given still substantial margins
of unutilized resources, there does not appear to be much
reason for expecting that a tax ctt will necessarily
produce a "bubble on a boom" of the sort we got in 1955,
when rising Government expenditures were overlaid on rising
private demands.
Not that this insures us against inflationary effects.

We have had earlier experience with rising price levels well
befcre full employment or full capacity utilization was

But, as Chairman Martin recently pointed out,

there also is another risk--the risk that an economy having
already sustained a three-year expansion might not respond
vigorously to a tax cut stimulus. Current evidence suggests
that either possibility is still very much alive.

It would

be premature, therefore, to adopt policies consistent with
only one alternative.

Until the economy more clearly commits

itself to one course or another, a policy of watchful waiting
continues to be appropriate.
Mr. Holland made the following statement with regard to the
financial situation:
The financial system is deep in the throes of its usual
December churning, and the final outcome is still uncertain.
The tax date is past, but the remaining two weeks of the
month can still generate some substantial pressures, as the
sharp but temporary upsurges of demand for bank credit and



reserves in the last two weeks of 1961 and 1962 can testify.
To date, however, one must say that the December tax and
dividend pressures had been surmounted fairly easily.
First reports from leading New York City banks suggest that
customer borrowing on the tax date yesterday was somewhat
heavier than usual, but not extraordinarily so. Bank
borrowing at the discount window moved up somewhat this
week, but up to the tax date, it was still below the
average November level. The money market generally also
has been in a comfortable position during most of December.
Mr. Stone has already commented on a number of the factors
contributing to this result, and I would add mention of the
sharp reserve redistribution from country to city banks.
Underlying the immediate market factors, there seems
to me to have been some recent softening, at least for a
time, of the strong pressure of credit demands upon the
banking system that was occurring earlier this fall. Bank
earning assets have continued to expand in late November
and December, but important portions of the week-to-week
increases at city banks have represented special financing
arrangements, or additions to bank portfolios of bankers'
acceptances, Treasury bills, or securities loans made when
a bank found itself with temporarily surplus reserves.
The more liquid of these acquisitions ought to be fairly
quickly disgorged as member bank borrowing climbs back up
into the $300-$400 million range.
A counterpart to these changes in bank earning assets
has been a slowdown in bank deposit growth and reserve
utilization. Seasonally adjusted required reserves against
private deposits have been drifting irregularly lower ever
since their early November jump. Money supply appears to
have leveled off in the second half of November and first
half of December, following its early November bulge. Time
deposit expansion also seems to have slowed in December
after the big November expansion when city banks bid so
aggressively for C.D. money. Part--but only part--of this
moderation of private deposit growth can be traced to
transfers to Government deposits, which have been climbing
somewhat more than usual since the end of October. But the
rest of the explanation must lie elsewhere. Partly it may
lie in imperfections in the seasonal adjustments being used.
Partly also, it may reflect a pause for some digestion of
the sharp deposit and credit increases that have occurred
since August. Such a pause is not unreasonable to expect.
We have had them before; they often have been brief, and
sometimes have been succeeded by a vigorous new upward push.



If in fact that vigorous upthrust is able to reassert
itself against the ebbing seasonal tides of the new year,
I think an important threshold for policy will have been
While the configuration of expansion in the banking
system was shifting, adjustments of other kinds were
proceeding elsewhere in the credit markets. In most
markets in which credit instruments are traded (the chief
exception being the mortgage market) interest rates have
had a tendency to show more movement in November and
December, both upward and downward. The timing has
varied from market to market, and the causes.of rate
fluctuations have not always been the same. In the
short-term markets, the chief factors have been shifting
reserve availability and changing expectations as to
official intentions. In longer term markets, rate
movements have been conditioned more by changing supplies
of new offerings, and, increasingly, by expectations as
to the likely trend of rates in 1954.
Whatever else their effects, the recent rate
fluctuations in the short-term area have had the therapeutic value of shaking up complacent market assumptions
of an official "rut" for bill rates and Federal funds
rates, and this has correspondingly broadened market
ideas of the range within which rates may be expected to
fluctuate under any given monetary policy in the future.
This may be of explicit help next month, for it gives
the Account Manager slightly greater leeway for permitting
market-induced fluctuations in short-term interest rates
during the lengthy succession of forthcoming Treasury
financings. As Mr. Stone has suggested, the Treasury
plans to be involved in the market in some respect or
another on every day from December 30 through February 15,
excepting for the reserve week from January 23 through 29.
To be sure, the Treasury and market participants will need
the protection of a System "even keel" policy more during
some of these intervals than others. But, by any stretch,
the openings for any intervening change in monetary policy
are uncomfortably slim.
There are, it should be noted, two ways in which
monetary policy will benefit from this concentrated Treasury
schedule. It will sweep the calendar clean of any further
necessary Treasury offerings until the May 15 refunding. An
advance refunding in March is a possibility, but that offering
is discretionary with the debt managers. Second, the Treasury
will be supplying a net $2 billion of longer bills to satisfy



seasonally strong investor demands, thereby moderating

the possible downward tendencies in bill rates. This
addition to bill supplies is about the same amount as
was added by the Treasury during the first two months
of 1963, but it will be concentrated much earlier in the
coming season, and should correspondingly postpone any
tendency for bill rates to drop to levels that might be
regarded as undesirable for policy purposes.
I recognize that several of my foregoing comments
suggest the possibility that both the need and the
opportunity for a further shift of monetary policy could
emerge by mid-February or thereafter. It would be
presumptuous--even foolhardy--of me to forecast such a
juncture. But this is one eventuality that the Committee
will want to watch for.
Mr. Furth gave the following report on the balance of payments:
The payments deficit for the current quarter will be
larger than that for the third quarter but probably still

much smaller than for the first two quarters of the year.
The October figure was revised upward by $100 million
to $300 million, owing to a reporing error of a large
bank; there is nothing the Federal Reserve can do to avert

such errors, and the resulting misinterpretations of the
payments trend--except to urge the reporting banks again,
and again to be more careful.
The preliminary November figure also indicates a
deficit of about $300 million; this result is rather
encouraging not only because November--like October-apparently saw a net flow of window-dressing funds to

Canada but also because the murder of President Kennedy
probably led to some outflow of U.S. funds.

The first December week produced a very large surplus,
suggesting a reflux of such volatile funds. The second
week showed a moderate deficit but the tentative nature of
the weekly data precludes the projection of the figures for
the second half of the month. Moreover, the next weeks will
see two types of transactions with opposite effects on the
outflows of window-dressing funds
U.S. payments balance:

to Europe--which have already begun--and receipts of year-end
payments on the debts owed by the United Kingdom and some
other countries to the U.S. Government. Incidentially,
insofar as European banks used Euro-dollars borrowed from
foreign residents rather than dollars borrowed from U.S.



residents for window-dressing, their transactions would
not affect the U.S. payments balance; but the dollar
would still be under pressure in European exchange
markets as commercial banks sold the dollars to their
central banks.
The Euro-dollar market seems to have contracted in
recent months, owing both to a more critical attitude of
European central banks and to the failures of financial
enterprises here and abroad that had large Euro-dollar
commitments. It remains to be seen what influence, if
any, a sizable contraction would have on U.S. international
liquidity. Withdrawal of U.S. corporate funds would reduce
the U.S. deficit, as presently calculated, except insofar
as the resulting rise in interest rates abroad led to
increased foreign borrowing from U.S. banks. But the
withdrawal of dollars now put into that market by foreign
bankers or traders would swell the dollar holdings of
foreign central banks and could thereby cause larger
foreign gold purchases from the U.S. Treasury.
The economic position of most foreign countries
remains encouraging. The same thing cannot be said,
however, for the policies of some of the most prosperous
countries. In spite of its large payments surplus and the
absence of domestic inflation, the most liberal and
internationally-minded European nation, Germany, maintains
a level of interest rates that attracts capital from all.
over the world; last summer it raised its import barriers
by increasing compensating taxes levied on imports; and
now it is planning to subsidize its exports by means of
changes in its system of tax rebates.
The European Economic Community as a whole seriously
contemplates an increase in its steel tariff, and it still
has to decide whether its agricultural policy will or will
not be consistent with expanding world trade in agricultural
If protectionism is going to emerge victorious from
these decisions, the result may well be a trade war between
the Community and the rest of the world, with serious
consequences for the very existence of the Community and
for the economic cohesion of the free world.
A revival of beggar-my-neighbor policies in international
trade might well nullify the gains in cooperation achieved in
international finance, and thereby add to the difficulties of

defending the dollar.


-20Chairman Martin then called for the usual go-around of

comments and views on economic conditions and monetary policy
beginning with Mr. Hayes, who commented as follows:
Nothing has occurred in the last two weeks to change
our assessment of the current business situation and outlook. Both continue to be quite favorable, even though
there are some uncertainties, especially with respect to
next year's business outlays on plant and equipment, and
even though the unemployment problem seems as intractable
as ever. The growing indications that the tax bill will
be passed early in the year constitute an important
element of strength. Mild upward price pressures are in
evidence, particularly in industrial raw materials--but
these faint signs are still far from conclusive evidence
that a major price break-out is under way.
Our balance of payments statistics continue to make
disappointing reading.

The final October report now shows

a deficit of $315 million, with the November figure
estimated to be almost as large. Now that some details
for October are available, it appears that both short-term
capital outflows and a shrinking trade surplus contributed
significantly to the deficit for that month. It is
disturbing to see the over-all deficit remain at such a
high level despite the virtual cessation of purchases of
newly-issued and outstanding foreign securities. While
the situation in the foreign exchange markets is fairly
satisfactory--except for the strength of the German mark
and the German balance of payments--the possibility of
renewed pressure on the dollar is clearly present.
The over-all statistics on bank credit point to

continued rapid expansion in this series, with the $3
billion gain in November the third largest this year. The
7.6 per cent annual rate of gain in bank credit in the
first eleven months of 1963 was only slightly less than
the 8.5 per cent rate of gain for the corresponding period
of 1962. Bank loans, including business loans, again
showed substantial increases; and while part of the rise
in loans appears to have been attributable to special
factors, it is hard to avoid the conclusion, especially in
the light of comments around this table at the last few
meetings, that underlying loan demand has strengthened
considerably in recent months. Nonbank liquidity
registered a further sharp advance in November, with sizable



gains in both money supply and time deposits. On the
other hand, it may be worth noting that in the past
two years the banks have materially lengthened the
average maturity of their portfolio of Governments--so
that further loan expansion could put greater upward
pressure on long-term interest rates than has been
true in earlier periods of loan expansion.
As we consider the possible need for policy
modifications in the months immediately ahead, we
cannot overlook the fact that the next couple of weeks
provide perhaps greater freedom of action to the System
than any other prospective period until some time in

March. The financing calendar for January is fairly
full, and in the latter part of that month the February
refinancing will be announced. This in turn may well be
followed closely by an advance refunding that will

extend well into March.
On most of the occasions during the past two years
when we have seen fit to move modestly toward lesser ease,
the Committee has rightly felt some reluctance to do so in

view of the then position of the domestic economy. Today,
however, I think we are in a different situation. Not only
is a further modest move in this direction clearly
indicated as desirable by the continuing balance of
payments problem, but there also is real justification
for asking ourselves whether the recent growth rates for.
bank credit and nonbank liquidity have rot exceeded

optimum levels even from a purely domestic standpoint.
We have had several warnings in the market that further
credit expansion at the present high rate may have decidedly
undesirable consequences for credit stardards.

I doubt

whether any of us, when we modified policy a year ago and
five months ago, had any idea that bank credit would keep
on growing as fast as it has.
It seems to me highly appropriate that in the next

three weeks we should seek to encourage a somewhat reduced
rate of bank credit growth by allowing credit demands to

put somewhat greater pressure on bank reserve positions.
Thus, free reserves might be allowed to fall moderately--

possibly to about the zero level. I can see no harm at all
if the result is to push bill rates somewhat above the
discount rate--perhaps to the 3.60 per cent level--although,
as seasonal pressures wane, we may have difficulty keeping
the rate much above 3-1/2 per cent. The serious balance of
payments outlook warrants our continuing to give careful
attention to the bill rate, over and above the proposed



objective of slowing the rate of credit growth.
If the Committee should agree on the soundness of
these objectives, the second paragraph of the directive
might well be amended slightly, first to eliminate the
reference to possible market unsettlement, which no
longer seems needed, and second to suggest a slightly
greater degree of firmness in the money market and a
slightly slower rate of reserve expansion.
Mr. Shuford said there had been no significant changes in
economic activity in the Eighth District since the Committee
meeting of two weeks ago.

For the year as a whole the District had

had marked improvement, but there had been little change since

Total employment in the District's major labor markets had

increased only slightly from the high level reached in July.


August industrial use of electric power had been about unchanged
and similarly with bank debits.
Total loans of weekly reporting banks showed a considerable
increase from August to November with most of the increase in
business loans to commodity dealers and food, liquor, and tobacco

Funds to accommodate this loan expansion had come from

a net sale of securities and a growth in deposits, mainly time deposits.
Noting that the national economy had been discussed fully
this morning, Mr. Shuford said he would simply mention that after
reaching a high level in mid-summer activity
somewhat more moderate rate.

had increased at a

Industrial production recently had

been only slightly above its July level in contrast to a 12 per
cent annual rate of expansion from January to July.

New construction



expenditures, after increasing rapidly from the first of the year
to August, were down somewhat in September and October and appeared
to be little changed in November.

Economic strength did appear in

some areas such as personal income, which in November continued the
steady rise of the past twelve months.

The latest data for corporate

profits and for plant and equipment expenditures were strong.
Mr. Shuford commented that monetary policy over the past year
seemed to him to have been reasonably appropriate.

Committee actions

had permitted a higher level of short-term interest rates, which had
contributed to a somewhat improved balance of payments situation.


the same time, policy had facilitated the improvement that had occurred
in economic activity by providing reserves for a relatively rapid
growth in bank credit and the money supply.
Mr. Shuford said he agreed with Mr. Hayes that the balance of
payments problems had not been resolved and could become more severe.
It was also true that the rate of increase in the money supply during
the past

year had been high compared with other recent years and had

continued high this fall.

However, in view of the moderate improvement

in the economy, the relative stability of prices, and the moderate
growth in real product, he did not feel that monetary policy had been
unduly expansive, considering a period longer than just the past few

He thought the Committee needed to be very much on the lookout

for evidence that monetary expansion might be leading to excessive



total demand, but in his opinion there was no clear evidence of this
Accordingly, Mr. Shuford said, he would favor no basic change

as yet.

He favored a bill rate fluctuating around the 3-1/2 per

in policy now.

cent level in response to seasonal influences both now and after the
year end, and a Federal funds rate continuing in the neighborhood of
3-1/2 per cent.

He thought reserves should continue to be provided at

a moderate rate so as not to unduly hamper economic development.
did not favor a change in discount rate.


With respect to the directive,

he suggested omitting the phrase referring to the death of President
Mr. Bryan said that Sixth District figures had been behaving
about the same as the national figures; they indicated some continuation of the upthrust but perhaps at a slightly decelerated rate.


he looked at the national problem he noted the change from a year ago
in the money supply, narrowly defined.

The increase seemed to him to

have been ample, and in the last three months the rate of increase had
been up, not down.

The banks recently seemed to have been able to

supply a rather sharply increased loan demand while expanding their

Also, liquidity in the nonbank sector had risen sharply.

The net of it, Mr. Bryan said, was that he could not see on the basis
of any reserve figures that the economy had been starved for reserves.
On the contrary, if anything monetary policy had been slightly too easy.
With respect to policy for the present, Mr. Bryan said that
December was not a time when the Committee could make a change



with any confidence, and he would be inclined to favor no change.


would interpret. no change in terms of a target figure for free reserves
of slightly over zero, but he would not object if they fluctuated back
and forth around the zero point.
He had noted comments at this meeting on the price level, Mr.
Bryan continued; he did not view price developments with as much
equanimity as others, he said, because of the consistency of the upward
drift that had been fairly evident in services and now had become
evident in commodities.

It seemed that some factors had been operating

to raise the price level in spite of the unemployment rate and the
existence of excess capacity.

While the rate of increase in itself

did not seem large, when it was compounded over a ten-year interval it
produced a surprising figure.

Mr. Bryan concluded by saying the direc-

tive should be altered by taking out the reference to Mr.


Bopp said that during the past two weeks there had been

small changes in

the Third District which po:nted,

slight imrovement in the business situation.



to a

Some areas had posted

gains in manufacturing employment in November, and store sales, after

closing out November with another relatively poor week, had picked up
during the first week of December.

Two developments characterized Third District banking since the
last Committee meeting:

the recent strength in

continuing reserve pressure and a slackening of

business loans.

Though down from recent highs,



the basic reserve deficit of reserve city banks was still fluctuating
around the $100 million mark, reaching $120 million on a daily average
basis in the week ending December 11.

During the same week, country

bank borrowing was $13 million, a relat.ively high level for recent

Though total loans and investments were up, business loans at

weekly reporting member banks had declined by $22 million.


compared to a $2 million fall in the same period last year.
As to policy, Mr. Bopp felt it important not to be swept away
by the extremely optimistic sentiment that seemed to prevail now.
Business was better than many people had expected but optimism seemed
to have out-run the facts.

The pace of expansion remained moderate and

was remarkably free of the excesses which characterize booms.


consensus on the outlook was favorable, but the predictions continued
to indicate only moderate advances.

And it was still far from a sure

thing that bus.ness would escape a downturn next year.
For these reasons, Mr. Bopp said, the Committee should not
move any further away from ease.

In any case, the present period,

with seasonal pressures in force, seemed an inappropriate time for
such a move.

It was important to see how vigorous business remained

during the winter months and as action on a tax cut moved nearer.
Moreover, time would reveal whether the recent improvement in the
balance of payments was temporary or not.
In sum, Mr. Bopp said, he would make no change in over-all
policy; he would not change the discount rate; and except for deleting



the reference to President Kennedy's assassination he would make no
change in the directive.
Mr. Hickman said that, as was to be expected, not much had
been added to the understanding of the business situation since the
last meeting of the Committee.

Output continued to expand moderately.

The latest projections on plant and equipment spending, as announced
by Commerce-SEC, were reassuring as to trend, although somewhat
disappointing as to level.

The news of a slippage of retail sales in

November had been anticipated, and fragnentary evidence for December
suggested a strong rebound.

Contrary to some expectations, the pre-

liminary report on seasonally adjusted corporate profits for the third
quarter showed a rise from the second quarter.
This might be a good occasion, Mr. Hickman commented, to catch
up on the most recent wrinkles in the auto and steel industries.


schools of thought seemed to be emerging in the automobile trade--one
bullish, one bearish.
strong to

The bears felt that sales were not sufficiently

sustain current output rates over the near future.


foresaw a cut on the order of 10 per cent in the production rate in

early 1964.

The bulls pointed to a shift of consumer preference

towards cars in the middle-range price bracket, coupled with the fact

that inventories had been particularly tight among dealers in such cars.
As more cars become available, it was argued, they would be sold, and
the current high level of output maintained.


-28In the steel industry, inventory liquidation appeared to have

proceeded more rapidly than expected, Mr. Hickman reported.


output and shipments were rising contra-seasonally and were lending
support to the adjusted index of industrial production.

Only a month

or two ago observers had been prepared for a decline in the steel
industry, at least of seasonal proportions.
Mr. Hickman said that money and credit developments of the
last two weeks had continued essentially along the lines of the recent
past except for an occasional inadvertent easing of the money market,
associated, as Mr. Holland had indicated, with a maldistribution of

If the Committee was trying to maintain an invariant free

reserve target of about $100 million--and he took it that such was
Committee policy--this sort of thing was to be expected.

In view of

the touch-and-fo situation in the foreign e,.changes and uncertainties
regarding future developments in foreign money market centers,


Hickman said, any tendency towards ease, even occasionally, ran the
risk of encouraging outflows of short-term funds from New York.
From time to time, Mr. Hickman continued, he had been disturbed
over the extent to which spokesmen outside the Federal Reserve System
appeared to be speaking for or committing the System in its future

For that reason, he was particularly pleased by the recent

statements of Chairman Martin and Mr. Hayes before the International
Chamber of Commerce.

It seemed to him that their words described



accurately and forcefully the appropriate monetary policy for present

Furthermore, to him their statements served to reaffirm

the central responsibility of the Federal Reserve System in the
determination of monetary policy.
Mr. Daane said that before participating actively in the
Committee's policy deliberations he would like to have a chance to
reorient himself on System thinking and to study the considerations
that had gone :.nto the formulation of monetary and credit policy in
recent months.

Accordingly, he would make no policy recommendations

at this meeting,.
The Chairman noted that Mr. Daane had just returned from a
meeting of the "Group of 10" in Paris and invited him to comment.


Daane replied that he would be happy to say a word about how that Group
was progressing and where it was heading.

By way of background, he

noted that at this year's meeting of the International Monetary Fund
in Washington the 10 nations participating in the "General Arrangements
to Borrow" had reached an agreement described in the following quotation
from a press release issued on October 2, 1963, by Secretary Dillon on
behalf of the "Group of 10":
"In reviewing the longer-run prospects, the Ministers
and Governors agreed that the underlying structure of the
present monetary system--based on fixed exchange rates and
the established price of gold--has proven its value as the
foundation for present and future arrangements. It appeared
to them, however, to be useful to undertake a thorough
examination of the outlook for the functioning of the



international monetary system and of its probable future
needs for liquidity.

This examination should be made

with particular emphasis on the possible magnitude and
nature of the future needs for reserves and for
supplementary credit facilities which may arise within
the framework of national economic policies effectively
aiming at the objectives mentioned in paragraph 2.
The studies should also appraise and evaluate various
possibilities for covering such needs."
The representatives of the Group to whom this study had been
entrusted had held two meetings in October during the week of the
Bank and Fund meetings and another meeting in Paris on November 5 and
8; and had just completed still another meeting in Paris on December
13 and 16.

Further meetings at the ends of January and February were


The purpose of these meetings, Mr. Daane said, was for the

participants to have full and frank discussions of their individual
views while remaining noncommittal with respect to the positions of
their governments.

It was tentatively planned to hold a week-long

meeting in Washington during the second week of April in the course of
which these preliminary expressions of individual views would be translated into negotiations, with deputies of the Group of 10 then
expressing the views of their governments.

Under this schedule the

period from the end of February to the second week of April would be
available for the governments to resolve their own positions.
Subsequent meetings were planned for mid-May and mid-June for the
purpose of preparing a preliminary report to be submitted to a meeting
of Ministers in June, for possible review at a Ministerial meeting in
Tokyo in September.



The representatives decided that their preliminary report

could begin usefully with a review of the reasons for the exclusion
from their discussions of two subjects--name:.y, changes in the price
of gold and fluctuating exchange rates.

The Group's secretariat had

been asked to assemble materials for this purpose, and the U.S.
representatives had contributed papers setting forth the assumptions
underlying the exclusion of these subjects.
The study itself involved three main topics:

the functioning

of the international monetary system, future needs for liquidity, and
the means of covering these needs.

Much of the discussion so far had

been concerned with the functioning of the monetary system, although
the group had begun to get into the question of liquidity needs.


sources of liquidity had been broken down into three components:


reserve currencies, and credit.

As to gold, the Bank for International

Settlements had submitted two background papers--one on the prospective
growth of gold reserves and the other on cooperation among central banks
in the gold market.

There had been some preliminary discussion of

these two papers at the most recent meeting, and it was expected that

there would be wider discussion as the work of the Group progressed.
As to the reserve currency component of liquidity, Mr. Daane

continued, the deputies had been invited to submit notes on their views
of the role of reserve currencies in the present international monetary
system, with particular attention to how the reserve currency system



was working and whether its replacement might be desirable eventually.
The U.S. representatives had submitted a paper on this subject which
had been considered at the recent meeting along with the submissions of
other countries.
Several broad currents of European thought seemed to be coming
through, Mr. Daane said.

There was considerable feeling that agreements

should not simply be bilateral, but should come under multilateral

There also was considerable feeling in favor of reducing present

holdings of reserve currencies and increasing holdings of gold, and
some feeling in favor of either supplementing, or substituting for,
reserve currercies by a composite reserve unit including a gold component.
Mr. Daane concluded by saying that the participants in these
meetings felt free to express their own views and tended to be
provocative in their remarks.

Their statements, of course, did not

commit their governments to any particular courses of action.


thought that the direction the study ultimately would take would be
much clearer after the April meeting, when it would be learned how

serious some of the individual country submissions were in terms of
government positions.
Mr. Mitchell said that it seemed to him the performance of the

real economy in the past 6 months had not been very strong, certainly
not if judged by the course of industrial production.

On the other

hand, the economy had been relatively free of disequilibrating tendencies



so that, for a lackluster performance, it had behaved desirably.
The credit economy was something to which the Committee was
more sensitive, Mr. Mitchell observed. He

noted that there had been

much concern expressed about the quality of credit, but he had not
seen any evidence that the quality of credit extended by banks had
deteriorated to the point where it jeopardized bank reserves in


In any event, he doubted that it was possible in a free

enterprise eccnomy for monetary policy to do much about the quality
of credit, which depended on the nature of the many individual
decisions made by loan officers on the ground.

In his judgment a

policy of restricting available funds and pushing interest rates up
would result in a detetioration of the quality of credit rather than

an improvement.
On the balance of payments, Mr. Mitchell said, it was true that
there recently had been disappointing news.

However, he thought the

Committee should recognize that monetary policy would not solve the
problem except insofar as it helped to stabilize the price level.


effects through short-term interest rates simply postponed the day of
judgment, and it was a mistake to think that such rate effects
accomplished more than this.
Mr. Mitchell commented that in his opinion some of the people
at the table were taking a rather unsophisticated view of the price
level and price indexes.

It should not be surprising, he said, that

the wholesale price index remained stable despite reports that many



businesses were testing markets and trying to raise prices.

As the

Stigler Committee had indicated, the wholesale price index utilized
price quotations rather than prices actually charged, with the result
that much actual cyclical movement was not reflected in the index.


his judgment, however, the price movement that was occurring was not of

a type to call for monetary policy action.
had a different defect:

The consumer price index

it failed to take account of quality changes.

He thought one could say with confidence that if such changes were
accurately measured the index would not suggest that there had been an
upcreep in consumer prices recently.
Mr. Mitchell concluded by saying that on the basis of these
thoughts and on the basis of the analyses presented by the staff, he
would favor no change in the Committee's present posture.

He would

amend the directive to take out the phrase referring to President
Kennedy's death.
Mr. Shepardson said that he recognized the divergent trends
that were mentioned in Mr. Brill's review.

On the other hand, while

it seemed to him that some factors were not as exuberant as many of
the Committee members might like, he would be inclined to give more
weight to the affirmative factors than Mr. Brill had.

He would admit

to taking an unsophisticated view of price developments; he shared
Mr. Bryan's concern that the Committee was not giving enough attention
to the upward crawl of prices.

The decline in beef prices had masked



the rises occurring in prices of other commodities.

Pressure on

prices was continuing, and while some increases were not sticking
others were.
There had been a constant upward movement in the consumer
price level, Mr. Shepardson continued, and this would be reflected
in wage negotiations in 1964.

He agreed with Mr. Mitchell that price

level changes would have a significant effect on the balance of
payments problem.
With respect to the outlook, Mr. Shepardson commented that
this season, near the year end, was not the best time to gauge the

Normally there was some slackening after Christmas and

it was hard to say what the next few months might show.

It seemed to

him the Committee had met seasonal reserve needs fully, if not more
than fully.

Required reserves continued to be above the staff guide-

lines and there had been a significant run-up in the money supply.
There had not been the upward pressures on interest rates often
associated with the Christmas season, which indicated that the
Committee had more than adequately met all needs.
At thi

point, Mr. Shepardson said, with the run-off that

usually started at Christmas and continued for some time afterwards,
it was particularly important that the Committee not lose ground.
Mr. Hayes had mentioned, it might be difficult to work against the
seasonal slack after Christmas, but every effort should be made to




avoid any sloppiness in money markets.

It was likely that the

Committee might want to take significant action in the near future,
and would need solid ground for such action.

He did not recommend a

significant change in policy at this time but did urge that the
Committee hold firmly to the money market conditions that it had had

It would not be undesirable for free reserves to fall to

zero, and the bill rate might be held at or somewhat above its present
Mr. Robertson made the following statement:
Both business and financial activity seem to have
settled back to a more moderate rate of expansion,
following their more vigorous advances earlier this
fall. If this change of pace represents simply a pause
to consolidate gains preparatory to further advances, I
suppose we all would be satisfieo. If it should prove
to be a lnger lasting loss of momentum, however, there
is reason for concern. We still have plenty of resources
that need to be put to work, and the November figure on
unemployment is a harsh if somewhat unreliable reminder
to that effect.
I know we are all watching the price indexes closely
for any signs of emerging general inflationary pressure,
but apparently price increases in some lines continue to
be roughly counterbalanced by offsetting if less
publicized decreases elsewhere. Presumably this kind of
happy coincidence will have to stop some time, but I do
not believe we can risk trying to forecast that timing.
Three years ago, no one would have forecast that our
economy could boost its GNP by roughly $100 billion
without any major accompanying movement of wholesale
prices, and I think that development snould make us
appropriately humble about our ability to guess how much
longer it can go on.
So long as we continue to have a noninflationary
economic expansion, I favor encouraging it with a broadly
stimulative monetary policy. In particular, during these



days of peak seasonal pressures I would direct the Manager to
provide the reserves needed by the market without any show of
reluctance, and I would caution him not. to be premature or
overaggressive in mopping up the return flow of reserves
after the holidays.
I would not think this prescription should produce any
great and sustained interest rate decline over coming weeks,
unless business activity softens, but it probably would allow
for moderately greater interest rate fluctuations downward
from their seasonal peak. This I think would be to the good,
for it could help to dispel some of the easy assumptions about
pegged rates that have pervaded financial circles, both at
home and abroad. The market developments of the past three
weeks have, of course, been a step in this direction, and I
hope we can reinforce that lesson in the weeks ahead.
All this I think can be accomplished within the confines
of the current directive. Neither domestic nor international
considerations seem to call for any overt policy change; and
both the seasonal churning in the markets and the forthcoming
schedule of Treasury financings provide technical arguments
against any change, other than perhaps to recognize these two
technical considerations explicityly in the directive, and, of
course, to drop the reference to President Kennedy's assassination.
Mr. Mills said that the main purpose of his remarks would be to
raise some heretical doubts on the handling of the transactions in the
Open Market Account that the Committee ordinarily conceived to be
orthodox and conventional.

He then made the following statement:

Confusing developments in the mechanical conduct of Federal Reserve System monetary and credit policy now cause me to
concentrate my remarks largely on technical matters. In the
short space since the Committee's last meeting, bank credit
has recorded a vigorous seasonal expansion, money market
conditions, as reflected by Treasury bill yields and the rate
on Federal funds, have tended to be relatively easy, and the
level of free reserves has plodded along in a narrow rut. It
is important to call attention to the stagnancy in the free
reserves factor because it belies what has been the feel and
tone of a desirably easier money market, and can reasonably
give rise to charges that the System's open market operations
have practiced a deception on those market observers who lay



store on the free reserves level as a guide to its policy intentions.
Granted the forgivable unreliability of our projections
of movements in the supply of reserves, the actual setting of
the average level of free reserves over a reserve week involves
no more than a last-minute arithmetical calculation by the
Manager of the System Open Market Account of a desired figure
then arrived at by supplying or withdrawing whatever amount of
reserves is necessary to make it come out. However, as matters
have transpired, reserves movements prior to the arithmetical
results of these calculations are what have in reality
characterized the tone and color of the reserve week and not the
recorded free reserves figure.
Application of this theory to the last two reserve weeks
indicates that, in fact, reserves available to the commercial
banking system have been adequate to sustain an appropriate

expansion of bank credit. At the same time, however, the
arbitrary fixing of a level of free reserves can have deceived
the financial community. Investor confusion as to the appearances and realities of System policy actions may be a reason for
the somewhat slow market response to the more available supply
of reserves and the seeming buildup in the supply of Federal
funds and in the magnitude of corporate repurchase transactions
with U. S. Government securities dealers.

That investors should

be bewildered about System policy intentions is quite understandable and can be traced to this further step in the direction of artificially controlling a U. S, Government securities
market that does not develop an interest rate structure
responsive to observable changes in the quantity of reserves
and the supply and demand of investment funds. The rising trend
in long-term interest rates is presently a better indicator of
actual investment conditions than is to be found elsewhere in
the area of shorter term securitie. yields, but here, too,

rumor and "official" statements may be influencing interest
rate movements beyond the realities of supply and demand con-

In the period until the next meeting of the Committee, the
market should be allowed a reasonably free rein, and any
fortuitous increases in the supply of reserves that exceed

seasonal proportions should not be seized upon as an excuse to
absorb reserves and to tighten the market.
Mr. Wayne reported that the limited information coming to light
in the past two weeks suggested for the most part continued improvement


in Fifth District business.

Insured unemployment rates were seasonally

Contract awards rose almost to record volume in October with

substantial strength in each major category.

Scattered reports dealing

with principal manufacturing industries remained quite favorable.


Cooley one-price cotton bill was passed by the House shortly after the
last Committee meeting and was now in the hands of the Senate
Agriculture Committee.
remained at high levels.

Bituminous coal production and shipments had
Both cotton and flue-cured tobacco estimates

had been revised upward, moderately improving farm income expectations.
Turning to national conditions, Mr. Wayne said that the present
period of business expansion had been moderate with several changes of
pace, but generally it had avoided excesses.

At least partly for that

reason it had lived to a respectable middle age.

In the short period

since the last Committee meeting there had been no major developments
to change the moderately favorable outlook.

The rise in unemployment

was somewhat puzzling and might be slightly disturbing, but a similar
rise occurred in November 1962 only to be reversed the following month.
Psychologically also, there seemed to be some similarity to the situation of a year ago immediately after the Cuban crisis.

The rebound from

the tragedy of a month ago, plus some indications that the President was
inducing a slightly increased tempo of action by Congress, seemed to
have produced, at least temporarily, a somewhat stronger feeling of
confidence and optimism in the economy generally.

This attitude,



together with a record backlog of capital appropriations by corporations, provided a reasonable basis for expecting that business
activity would continue at a moderately good level in the weeks

immediately ahead.
On the policy side, Mr. Wayne said, there seemed to be no signs
of monetary strain or tightness
fied activity.

in this period of seasonally intensi-

In fact, the drop in some short-term rates early last

week to their lowest levels since midsummer suggested just the

He realized that this probably resulted from a special

combination of circumstances, but even so he believed that Committee
policy had been sufficiently easy to take care of seasonal needs and
to allow for any sustainable growth or expansion which the economy
might generate.

The increases in the various categories of reserves

and in the money supply in the past two or three months seemed to be
ample by any valid measure.

Since there had been no significant change

in basic conditions or prospects, Mr. Wayne said, it seemed appropriate
to continue the Committee's present policy.

He would favor renewing

the current directive with the elimination of the reference to President
Kennedy's death.

He did not favor any change in the discount rate at

this time.
Mr. Clay commented that it was not likely that the domestic
economy had changed in any basic way in the short interval since the
Committee last met two weeks ago.

It had been a period, however, in



which a substantial amount of economic information had become
The significance of the additional information about the


economy's performance and prospects was that it appeared so similar to
what it had been for a considerable span of time.

Apart from the

immediate adjustments in economic activity following President
Kennedy's death, the shape of economic events remained largely
unchanged, the pace of moderate expansion continued, the problems of
needed expansion and underutilization of resources remained, and the
evidence of a marked forward thrust in economic activity was still
Mr. Clay felt that the degree of expansion in the months
ahead would depend importantly upon the developments in the cyclically
sensitive areas of the economy, one of which was business capital

He observed that much had been said in recent weeks about

anticipated business capital outlays, notably following the McGraw-Hill
report, and the likelihood of a markedly better performance.


might yet come to pass, Mr. Clay said, but the Commerce-SEC release had

been sobering with respect to those expectations.

Present evidence

seemed to suggest that businessmen do not foresee sufficient market
demand for their output to justify a marked rate of expansion in

business capital outlays.
Under the circumstances, Mr. Clay continued, monetary policy
for domestic purposes should aim to supply reserves in sufficient



volume to permit commercial bank credit growth on a seasonally
adjusted basis.

The goal with respect to the 90-day Treasury bill

rate might well remain within the yield range of recent weeks, which
presumably would be appropriate for international flow of funds

Over all, these objectives probably would be compatible

with the general monetary policy that the Committee had been pursuing.
Presently, credit markets would move into the period when seasonal
forces might exert downward pressure on short-term rates.

It was not

possible, Mr. Clay said, to know ahead of time just how intensive those
pressures would be in any given year.

Moreover, Treasury financing

during that period and market knowledge of Treasury and Federal Reserve
interest rate objectives might tend to alleviate downward interest rate
pressures in those weeks.
If downward rate movement beyond recent levels could not be
avoided except by restricting reserve availability on a seasonally
adjusted basis, Mr. Clay observed, consideration should be given to
accepting a slightly lower level of rates temporarily.
Bank discount rate should remain unchanged.

The Reserve

He would keep the directive

as it was except for the elimination of the reference to President
Kennedy's death.
Mr. Scanlon said that business sentiment in the Seventh District
continued strong, although with cautious undertones.

A panel of top

executives at a recent annual business outlook session in Chicago had
been uniformly optimistic.



The Reserve Bank's recent poll of business and financial
economists pointed to moderate economic growth in the next six months
with Gross National Product at a rate of about $610 billion in the
second quarter of 1964.

Many of these observers believed the proposed

tax cut was necessary to sustaining expansion beyond midyear.
Local steel experts in Chicago, Mr. Scanlon reported, foresaw
a rise in consumption of finished steel from 78.5 million tons in 1963
to somewhat over 81 million tons in 1964 even without inventory building.
Imports were expected to be a record 5.5-6 million tons next year.
United States ingot production was expected to rise from 109.5 million
tons in 1963 to 111 million tons next year.

This projection assume

domestic production of.7.5 million autos in 1964, only a slight drop
from the 7,650,000 units now expected to be produced in the current

Auto production and sales continued strong; fourth quarter

figures were close to record levels and first quarter projections were
being raised.
Consumers appeared to be spending quite freely, Mr. Scanlon

Aditions to savings at commercial banks and savings associations

were sharply below the year-ago rate in October and apparently in
November as well.
Seventh District banks had not shown as great a rise in loans
over the past month as those of the nation.

Exclusive of loans to

securities dealers, the November rise at District banks was about the


same as a year ago.

For the second half to date, loan expansion had

been 4 per cent, compared with 3-1/2 per cent last year.

Borrowing by

commercial and industrial firms remained strong, with a large portion
of the recent increase attributable to seasonal borrowers and oil
company property transactions.

Recently demand had been sustained by

the usual borrowings related to tax and div.dend payments.
The basic position of large Chicago banks had been greatly
improved over the past three weeks, Mr. Scenlon continued.


deposits were down slightly, this development reflected mainly portfolio and dealer loan adjustments.
Turning to policy, Mr. Scanlon said he thought the Committee's
posture had been appropriate, but he expected that economic developments
in the near future would call for a somewhat firmer money market than
was provided in the Committee's current directive.

He had the feeling

that, in retrospect, it may appear that the Committee should have made
such a move now, but with the period of so-called winter lull ahead
and possible adverse psychological effects cf the current widespread
discussion of cutbacks in Government spending, he was inclined to
continue the current policy until the next meeting of the Committee.
He thought the reference to the death of President Kennedy should be
deleted from the directive since any unusual developments in the money
market now probably would not be a direct result cf that event.
would not charge the discount rate at present.




Mr. Deming said that 1963 was closing with Ninth District
economic activity continuing to expand, after allowances for seasonal

There had been some drop in retail sales late in November

but this seemed to have been a reaction to the President's death and the
national period of mourning.
per cent ahead of a year ago.

District bank debits in November were 10
Preliminary estimates for November

factory employment seemed favorable.

Construction employment had held

up better than usual and building permit figures indicated strength in
that area.

Even the iron ore picture seemed to be better, with

shipments in November almost double those of November 1962 and total
tonnage so far this year running about 2 million tons or 3-1/2 per cent
ahead of last year.

Since pellet shipments had increased the iron

content shipped this year probably was larger relative to last year
than the tonnage figures indicated.

The reason for the strong November

showing, Mr. Deming said, apparently was a heavier-than-expected
drawdown of mill stocks earlier and a desire to rebuild them, which
might augur well for steel output this winter.
Fourth quarter cash farm income in the Ninth District apparently
would be off sharply from the same period a year earlier, Mr. Deming

This would pull cash income for 1963 below 1962 but not by

much, perhaps 1-1/2 per cent.

The fourth quarter drop seemed to reflect

some holdup on marketings of both grain and livestock, perhaps partly
reflecting tax considerations.

Thus, the prospect now was for a more



favorable first quarter farm income picture than had been expected
Mr. Deming said the Federal Reserve Bank of Minneapolis had
inaugurated a new sample of some 15 to 20 big manufacturers headquartered in the Ninth District but operating nationally and, in
most instances, internationally.

They were asked for information on

current operations both within and without the District and about
prospects for their firms for the coming quarter.

The survey was too

new to lean on heavily as yet, but four points brought out seemed
worthy of note.

First, current (November) figures on new orders,

order backlogs, inventories, and employment indicated mostly stability
to growth relative to October.
due to unusual circumstances.

Any declines seemed to be seasonal or
Second, the out-of-District figures

seemed to be more favorable than the in-District figures, which might
also reflect seasonal factors.

Third, expectations for the first

quarter of 1964 in terms of output, employment, and profits were
favorable; in fact, more favorable than current developments were
relative to these of the immediate past.

Fourth, average prices for

finished products apparently showed no change in November and most
respondents expected no change in the first quarter of 1964.

Of the

three firms which expected price changes, two expected prices to rise
slightly and one expected its prices to fall slightly.
Turning to banking, Mr. Deming said that the statistics
indicated a much stronger than normal credit expansion in November,



with loans sparking the expansion, but a return to normal seasonal
changes in the first two weeks of December.

Deposit growth, which

was larger than usual in November, apparently had carried over its
strength into December.

Ninth District banks did not seem to be under

any particular pressure but, particularly at city banks, loan-deposit
ratios had moved up rather sharply recently, although they were still
3 or 4 points below their previous peaks.
With respect to policy, Mr. Deming said he agreed with those
who suggested there should be no basic change over the next three


he looked at the figures in the Board staff's memorandum

on reserves, he was struck by the fact. that borrowings and free reserves
in October, November, and December were fairly stable, if one averaged
the weekly figures shown for each month.

This, he thought, was about

the policy posture the Committee should be making.

He would expect an

upsurge in borrowings in December, and consequently lower free reserve

He would not be disturbed if free reserves fell below $100

million--a level somewhere around $50 million seemed all right--although
he did not advocate operations to push free reserves down.

Mr. Deming

concluded by noting that Treasury financing operations planned for
January and February might put some pressure on the market and in a
sense serve as a substitute for any additional pressure by the System.
He would not change the directive except to delete the reference to
the President's death.



Mr. Swan reported that activity in the Twelfth District seemed
to be continuing at a reasonably satisfactory level.

In California

employment increased slightly in November but, as in the country as a
whole, there were substantial additions to the labor force and consequently the unemployment rate rose rather sharply.
Mr. Swan said he was glad to see that Mr. Brill had slightly
qualified his reference to the universal degree of optimism.

He (Mr.

Swan) happened to be in Seattle when cancellation of the Dyna Soar
The reaction there had been remarkably

project was announced.
widespread and sharp.

The cancellation means that 5,000 workers

engaged on that project will be affected, and this follows a decline
of about 14,000 jobs from the peak in 1962 in the aircraft industry in
the State of Washington.

There was a general feeling that these job

reductions would have some secondary repercussions on the economy of
the area, but it was too early to determine what the effects would be.
Attitudes were quite different in the Spokane area, Mr. Swan

Conditions in agriculture, in lead, zinc, and silver mining,

and even in the lumber industry provided a basis for some optimism.
Mr. Swan reported that there had been no marked change in the
Twelfth District's financial picture during the past two weeks.


reporting banks had shown a substantial increase in loans, although not
so much as in the nation as a whole.

District banks were net sellers

of Federal Funds in the first two weeks of December but they expected
to be net purchasers in the current week.


-49Turning to policy, Mr. Swan said that in view of the somewhat

more moderate increase in economic activity recently, the rise in the
unemployment rate in November--which he found difficult to interpret-and the substantial cross-currents in the money market that probably
would continue for a time, he saw no basis for changing policy at
present, not even to move to a slightly lesser degree of ease.


seemed to him that in light of these factors and of the expected
reversal of seasonal pressures it would be better to wait and see what
happened through the year-end before making any decision on a policy

He would like to see the bill rate fluctuating around the dis-

count rate, presumably with free reserves in the area of $50 to $100

He would not change the discount rate, nor would he change

the directive except to delete the reference to the President's death.
Mr. Irons reported that attitudes in the Southwest were quite

There were a few scattered indications of further

expansion, but on the whole the available data were neither current
enough nor good enough to support these attitudes.

Scattered comments

from merchants in the District indicated that they expected Christmas
business to be up, with some expecting a moderate increase and others
a substantial one.

The various elements in the economic picture were

about as he had reported them at the last few meetings.

Activity was

at a high level and inching up, and a more substantial rate of increase
was expected.


-50On the banking side, Mr. Irons said, there was more evidence

of expansion.

Loans were up more than seasonally at District banks,

with substantial gains in commercial and industrial loans and consumer

The press in the District seemed to be urging people to use

consumer credit and some recent articles in the business sections of
Dallas papers amounted almost to exhortations on the subject.


holdings of Treasury bills had risen, and bank investments generally
were up substantially in this short period.
also had risen.

Demand and time deposits

A few banks had been heavy purchasers of Federal funds,

and a few banks had been relatively heavy borrowers from the Reserve

A fairly substantial increase in borrowings between now and the

end of the year seemed likely.
Mr. Irons noted that recently there had been a flurry of
interest on the part of some District banks in the possible use of
capital debentures; also, a large bank had announced that it would issue
mortgage notes on its buildings and use the funds to better meet its

customers' credit needs.
With respect to policy, Mr. Irons said, he came out today at

the same place as many others; he would hold to present policy and not
attempt to establish a situation of either less ease or more ease.


thought the Committee should continue to watch price developments
closely, but he agreed with some of the comments that Mr. Mitchell had
made regarding price indexes.

He was particularly distrustful of the



consumer price index as a reflector of the cost of commodities.


the moment, he did not feel there was a strong inflationary bias in
the economy, although one might develop, and he would not advance such

a bias as a reason for changing policy.

Mr. Irons thought the present

situation, with the bill rate around 3.50 per cent and the Federal funds
rate at 3.50 per cent, was about right.
make reserves available as needed.

He advocated continuing to

He favored maintaining the status

quo, more or less, until the year-end, meanwhile observing developments.

He would not change the directive other than to eliminate the reference
to President Kennedy's death.
Mr. Ellis said First District department store figures suggested

that Christmas season sales this year would probably exceed those last
year despite the shorter shopping period.

Regional statistics suggested

that the underlying tendency of the District economy was in the direction

of continued upward thrust, with developments in construction, production,
nonmanufacturing activity, and vacation business the most outstanding.
At banks, October and November brought demand deposit totals to a level
some 6 per cent ahead of last year.

District banks had moved sharply

from net buyers of Federal funds in September to net sellers since.
These influences had brought to an end the contraction in bank holdings

of short-term Governments and had halted the year-long rise in loandeposit ratios.

They also interrupted the decline in short-term liquid

asset ratios chat began in the first quarter of 1963.



Turning to monetary policy, Mr. Ellis said that several

aspects of the current situation inclined him in the direction of

For example, he said, the standard analysis suggested a

strongly expanding economy in its 34th month of expansion and facing
another year of substantial growth.

The economy was likely to be

impelled forward by a tax reduction effective January 1. Except for
concern with the 5-1/2 per cent rate of unemployment, people would be
describing the economic situation in glowing terms.

It seemed to him

that higher minimum wages and liberalized unemployment compensation
provisions, coupled with changed attitudes toward "acceptable work,"
inevitably meant a higher rate of unemployment in the economy, and
experience did not suggest that this problem could be solved by credit

Since the Committee's last shift in monetary policy in July,
Mr. Ellis continued, reserve expansion had materially exceeded the
staff guidelines, to the point where the rate of credit expansion
might well be considered to be unsustainable.

Since July reserve

expansion had been at an annual rate of 6 per cent, while the money
supply had increased at a seasonally adjusted annual rate of 5 per

At some point the burden of proof must shift to those who

wanted to continue inflating the money supply at the current rate.
Considering international capital flows, he thought it appropriate to
note that foreign lending at First District reporting banks stood 41



per cent above the year ago level, with all of the gain occurring
since July.

Fourth quarter balance of payments figures when published

would not be well received, and questions might be raised about the
use of monetary policy in light of these figures.

Belgium, France,

and Canada had all recently increased their bank rates by 1/2 per
cent, Mr. Ellis noted, and Sweden and Switzerland had permitted a
rise in market rates.

The Committee had been told this morning about

the attractive rates prevailing in Germany.
These various developments, Mr. Ellis said, suggested to him
that the next move in monetary policy should be a gradual shift to
what he would label as a neutral position.

He had the feeling that

the Committee had already crossed the threshold for policy that Mr.
Holland had mentioned.

He was troubled by the fact that the oppor-

tunities for changing policy in the near future were slim in view of
the Treasury financing calendar; the choice seemed to be to change
policy now or wait until spring.

He thought that now was the time to

move toward neutrality, Mr. Ellis continued, and as targets he suggested

a gradual lowering of free reserves to zero by mid-January and acceptance
of short-term rates up to 3.60 per cent with occasional fluctuations
above that level.

He would amend the directive accordingly.


mentioning these targets, Mr. Ellis said, he was aware of the problems
that faced the Desk during the next few weeks; it was going to take a

great deal of running even to stay in one place.


-54In a concluding remark, Mr. Ellis said he accepted the

possibility that developments in the market might make discount rate
action desirable before the mid-February Treasury refunding.
Chairman Martin noted that barring an unforeseen event this
would be the last Committee meeting of 1963.

He thought the Committee

was closer together in its views this morning than it had been for
some time.
He recently had re-read the minutes of the meetings for the
last year, the Chairman continued, and he was inclined to think that
the Committee, on looking back over what had been a difficult year,
would feel that monetary policy had done well.
timing of policy actions had been good.

In his opinion the

The Committee had been right

when it moved to slightly less ease at this time last year.

The most

dramatic policy action had been the discount rate change in the summer
of this year.

While judgments might differ

he believed it had been

almost essential to take that action then in view of the balance of
payments situation that was developing.

No one would know how much

effect the discount rate change had had on the balance of payments
because the interest equalization tax proposal came into the picture
almost immediately, but in his judgment the effect was salutary.
Chairman Martin said he would be inclined to Mr. Scanlon's
line of reasoning if the Committee were to attempt to project into
the future, but he did not think the Committee should do so.




favored no change in policy at the present time for a variety of

He thought that the economy was in a period of excessive

optimism, and such optimism disturbed him because he did not think it
To some extent the optimism was the result

was warranted by the facts.

of efforts to pass the tax program; there had been a psychological
buildup about what could be achieved by a tax cut that was
disproportionate to the likely consequences.

Some kind of tax program

probably would be passed in late February cr early March and made
retroactive to the first of the year, but its actual impact on the
economy remained to be seen.
If the Committee made no change in policy today, Chairman
Martin continued, it would be pretty well blocked out for a long time.
This was not a case of holding off until the next meeting; the changes
were that the next opportunity for action would not occur before March.
If the present euphoria should be translated by a tax cut into a real
surge in the economy, the System might be faced with the need for a
change in the discount rate or some other drastic action to be taken
at the first opportunity.

This was something the Committee should

not lose sight of.
The whole western world was again faced with the specter of
inflation, the Chairman observed, and he was opposed to inflation
because it led to deflation.

There were those who believed that

unemployment could be cured by easy money.

He doubted this; monetary



policy had a residual influence on the unemployment problem, but
budget, fiscal, and wage-price policies had more fundamental effects.
What the Committee was faced with, the Chairman commented, was
a condition of euphoria that was pushing interest rates higher than
justified by underlying supply and demand conditions in the markets for

He believed that even with the expected return flow of funds

this situation was likely to continue into the first part of the year.
He agreed with Mr. Shepardson's comment that the Committee should nct
let the situation get away from it on either side.

Monetary policy had

been reasonably successful in assisting the domestic economy without
inflation over the past year, and should continue to try to help the
At the same time, it was necessary to

economy in every way it could.

be cognizant of the balance of payments problem.

He did not anticipate

a run on the dollar, but the Committee must keep alert.
In sum, the Chairman said, monetary policy had had a good year,
and he thought it inadvisable for the Committee now to force its hand.
A tax reduction probably was not too far off.

If for any reason,

however, the tax cut should be set back there would be deterrent effects
on the economy, but the Committee probably would have time to face up to
this eventuality if it occurred.

He thought the Committee was justified

at this juncture in accepting the good fortune it had had with monetary
policy to date.

He favored continuing the directive as it stood except

for the elimination of the reference to President Kennedy's death.



In further remarks Chairman Martin said the Committee should do
everything in its power to assess the role of monetary policy in the
early part of the new year.

He thought the Committee could take a

certain amount of satisfaction from developments in 1963, but the real
test would come if a tax reduction was voted.

With respect to the price

situation, he did not believe that monetary policy could control prices,
but it was one factor affecting them.

He did believe that prices were

on the move and the Committee could not afford to be complacent.


the wholesale price index continued to hold to its earlier level, the
desire and the tendency to raise prices was quite evident in business

The Committee had to recognize that the price problem was going

to remain with it.

The Committee could not ignore it and should try to

reassess it.
Chairman Martin said he thought the large majority of members
were for no change in policy today, and for no change in the directive
except the deletion of the reference to President Kennedy.

He would

hope that at some point early in the new year the Committee would have
enough information to make a more fundamental judgment on policy, but
in his opinion it did not have that information today.
Thereupon, upon motion duly made
and seconded, the Federal Reserve Bank
of New York was authorized and directed,
until otherwise directed by the Committee,
to execute transactions in the System
Account in accordance with the following
current economic policy directive:



It is the Federal Open Market Committee's current
policy to accommodate moderate growth in bank credit,
while maintaining conditions in the money market that
would contribute to continued improvement in the capital
account of the U.S. balance of payments. This policy
takes into consideration the fact that domestic economic
activity is expanding further, although with a margin of
underutilized resources; and the fact that the balance-ofpayments position is still adverse despite a tendency to
reduced deficits. It also recognizes the increases in
bank credit, money supply, and the reserve base of recent

To implement this policy, System open market operations
shall be conducted with a view to maintaining about the same
conditions in the money market as have prevailed in recent
weeks, while accommodating moderate expansion in aggregate
bank reserves.
Votes for this action: Messrs.
Martin, Bopp, Clay, Daane, Irons,
Mitchell, Robertson, Scanlon, and
Shepardson. Votes against this
action: Messrs. Hayes and Mills.
Mr. Mills said he did not object to the deletion from.the
directive of the reference to the President's death, but he dissented
from the decision to make no change in policy for reasons that he had
cited previously.

He observed that the actual experience of the last

two weeks with respect to availability of reserves fitted his own
judgment of a viable and constructive credit policy but in his opinion
it did not conform to the language of the directive.

There would be

a relatively short period from now until the next meeting during which
there might be some temporary seasonal tightness.

However, such a

development appeared unlikely since the weight of events seemed to be
toward ease; the projected movements in reserves, the customary



early-year tencency towards credit liquidation, and the post-Christmas
return flow of currency all tended in this direction.

He did not

understand why the Committee should be so concerned about inflation as
to wish to accelerate a normal seasonal credit contraction and to produce
a lower level of free reserves and credit availability.

He could not

reconcile this with the kind of credit and monetary policy that in his
judgment it was the responsibility of the Committee to formulate.


the years and particularly this year, Mr. Mills continued, he had
become increasingly of the opinion that monetary policy could do a
great deal more harm than good.

He thought it was the tendency of the

Committee to permit its fears and concerns to lead to the harmful side
of contraction.
Mr. Hayes said he favored deleting the reference to the death
of President Kennedy but he dissented from both the directive and the
consensus for no change in policy.

In his judgment the Chairman had

been quite realistic about the matter of timing; if no change in
policy was made at this meeting the Committee would be precluded from

making a change for about three months. and to his mind this was unwise.
Mr. Ellis had put the case for a slight move toward less ease very

Mr. Hayes said he had the feeling that many people around the

table saw inexorable forces leading the Committee to less.ease and
he was at a loss as to why the Committee should not make a modest step
now to pave the way.

He had hoped for action at this meeting similar



to the action taken last December; it seemed as appropriate now as
it had then.
In response to a question from the Chairman, Mr. Stone said
he did not consider it necessary to recommend any amendment to the
cpntinuing authority directive with respect to the limit on the change
in the aggregate amount of U.S. Government securities held in the
System Open Market Account during any period

between meetings of the

It was agreed that the next meeting of the Federal Open
Market Committee would be held on January 7, 1964.
Thereupon the meeting adjourned.

Assistant Secretary