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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, February 12, 1963, at 9:30 a.m.


Martin, Chairman
Hayes, Vice Chairman

Mr. Deming
Mr. Ellis
Mr. Fulton

Mr. Mitchell
Mr. Robertson
Mr. Shepardson
Messrs. Bopp, Scanlon, Clay, and Irons, Alternate
Members of the Federal Open Market Committee
Messrs. Shuford and Swan, Presidents of the Federal
Reserve Banks of St. Louis and San Francisco,
Mr. Young, Secretary
Mr. Sherman, Assistant Secretary
Mr. Kenyon, Assistant Secretary
Mr. Hackley, General Counsel
Mr. Hexter, Assistant General Counsel
Mr. Noyes, Economist
Messrs. Brandt, Brill, Furth, Garvy, Holland, and

Koch, Associate Economists

Mr. Stone, Manager, System Open Market Account
Mr. Coombs, Special Manager, System Open Market

Mr. Molony, Assistant to the Board of Governors
Mr. Cardon, Legislative Counsel, Board of Governors
Mr. Williams, Adviser, Division of Research and
Statistics, Board of Governors
Mr. Yager, Chief, Government Finance Section,
Division of Research and Statistics, Board
of Governors
Mr. Heflin, First Vice President, Federal Reserve

Bank of Richmond
Messrs. Eastburn, Ratchford, Baughman, Jones, Tow,

Green, and Grove, Vice Presidents of the
Federal Reserve Banks of Philadelphia, Richmond,
Chicago, St. Louis, Kansas City, Dallas, and
San Francisco, respectively

Mr. Litterer, Assistant Vice President, Federal
Reserve Bank of Minneapolis
Mr. Sternlight, Manager, Securities Department,
Federal Reserve Bank of New York
Mr. Anderson, Financial Economist, Federal Reserve
Bank of Boston
Mr. Mann, Senior Economist, Federal Reserve Bank
of Cleveland
Upon motion duly made and seconded, and
by unanimous vote, the minutes of the meeting
of the Federal Open Market Committee held on
January 8, 1963, were approved.
Before this meeting there had been distributed to the members of
the Committee a report covering open market operations in U. S. Government
securities for the period January 29 through February 11, 1963.

A copy of

the report has been placed in the files of the Committee.
Mr. Stone commented in supplementation of the report as follows:
The past two weeks have witnessed little change in the
money market or the Government securities market. In the
securities market there was an excellent response to the
Treasury's February refunding, with the public taking about
$2.5 billion 3-3/4 per cent bonds of August 1968 and $2.8
billion 3-1/4 per cent one-year certificates. Only about
$200 million of maturing issues were not: turned in--a re
markably low attrition rate of just a little over 3 per cent.
The turn-in for the bond was large enough to accomplish some
useful debt extension, yet not so large as to denude the
short-term area (as happened in the Treasury's exchange opera
tion last November).
The market is now awaiting the second phase of the three
stage program that the Treasury indicated with the announcement
of the February refunding--namely a "junior" advance refunding
which may be announced on or about February 20. The third phase
is to be a second competitive auction of long-term bonds early
in April; the amount of the issue and the date will be announced
on March 13, and the coupon or coupons on March 27, according to
present plans.
Price changes during the recent period for the most part
consisted of small adjustments to the Treasury's current and
prospective financings. Issues maturing out to 1966 recorded

small gains on the expectation of reduced supplies because of
advance refunding; some of these issues were up more sharply
where the market anticipated possible rights value. At the same
time, prices of issues surrounding the new 5-1/2 year bonds moved
a little lower and most longer term issues were also lower
because of prospective increases in supply as a result of the
advance refunding and the long-term bond auction.
The Treasury bill market has also been very steady, with
rates on three-month bills varying only between 2.93 and 2.96
per cent. There was a considerable reduction in dealers' bill
positions during the period, however, as good bank and nonbank
demand has continued to be attracted by current rate levels. Ir
turn, this may lead to increasing downward pressures on rates in
the weeks aead, particularly if there is any substantial move
ment out of rights in the advance refunding and into bills. A
prospective sale of another $1 - $1.5 billion of June tax
anticipation bills on March 6 should help to restrain such
downward pressures.
Underlying the steady bill rate in the past two weeks has
been a very steady money market, in which Federal funds traded
consistently at 2-7/8 to 3 per cent--mainly the latter. In turn,
the steady money market reflected a relatively even day-to-day
climate of reserve availability, in which supplies of Federal
funds tended to fall a little short of demand so that a moderate
part of the member banks' reserve needs had to be met at the
discount window.
In working toward this result, the System put in reserves
gingerly during the period, relying on the condition of the market
to indicate the extent of reserve needs and then moving to meet
only the more pressing part of those needs. Thus reserves were
supplied in good part through repurchase agreements, although the
total size and duration of reserve needs also made it necessary
These were
to make sizable outright purchases on several days.
largely in the form of Treasury bill purchases, either in the
market or directly from foreign accounts. In addition, a modest
amount of coupon issues was purchased in the market, avoiding by
a margin of 2-1/2 years and more the issues involved in the
Treasury's current refunding. These purchases served the addi
tional purpose of demonstrating our continuing adherence to a
policy of flexibility in the conduct of open market operations.


the discussion that ensued, Mr. Stone was asked for further

comment on the purchases for System Account of $31.5 million of coupon
issues during the past two-week period.

Of these purchases, $5 million



were in the one to five-year maturity area and $26.5 million were in the
over five-year area.
Mr. Stone replied that it had been necessary to supply some
reserves on an outright basis.

Most of these reserves were supplied

through bill purchases, but advantage also was taken of the opportunity
to supply some of the reserves through purchases of coupon issues.


making these purchases, the Account Management avoided by a margin of
2-1/2 years and more the issues involved in the Treasury refunding.


had been some market speculation, Mr. Stone noted, that the Open Market
Committee had abandoned the tool of operations in coupon issues, and as he
looked ahead he saw relatively few opportunities for engaging in transactic
in coupon issues to head off this kind of speculation.

No such operations

had been undertaken since early December, and it seemed to him that the

Manager had an obligation to keep the Committee's tools in good repair.
Further, if coupon issues were purchased at a time when there was
not a real need for such purchases, an expectational reaction would be
engendered that would defeat the effects sought to be achieved.


these circumstances, he had considered it desirable to make some modest pur
chases of coupon issues.

Obviously, they had no impact on the outcome of

the Treasury financing; neither the amount of attrition nor the split
between the two issues offered by the Treasury in the refunding was affectec

Mr. Robertson indicated that although he appreciated the points made
by Mr. Stone, he had some question about the recent transactions from the
standpoint of timing.

In his opinion, the Account Manager should be able to



find some opportunities to use the tool other than at a time when the
Treasury was engaged in a refunding operation.

When coupon purchases

were made in such circumstances, there were likely to be accusations
that the System was simply endeavoring to help the Treasury.
Chairman Martin agreed that this was a point to be borne in mind.
He had received a number of comments to the effect that the coupon issues
had been purchased out of interest on the part of the System in helpirg the

While he thought Mr. Stone was correct in his comments, the

possibility of market misinterpretation should not be ignored.

Mr. Stone

had referred to one kind of market misinterpretation, but the possibility
of misinterpretation must be watched in both directions.
Mr. Hayes agreed that this possibility should not be disregarded.
He questioned, however, whether the Committee should abandon the idea of
engaging in any transactions in coupon issues during every period of
Treasury financing.

Such a broad self-denial could at times work against

the interests of the System.

There were a lot of periods during the year,

he observed, when the Treasury was operating in the market.
Mr. Stone commented that the Treasury had already conducted ore
bond auction and was planning another in April.

It might develop that

the Treasury would work toward quarterly auctions of this kind.

If so,

and if the Committee denied itself the use of the tool of coupon issue
operations during all periods of Treasury financing, such operations would
be precluded for substantial periods each year, including periods as long
as three weeks before and after each bond auction.

He would feel more



constrained to avoid coupon issue operations in maturities beyond five
years--or perhaps seven or eight years--during the period surrounding a
bond auction than he would from engaging in operations such as conducted

within the past two-week period, which were small, selective operations
entered into during a refunding operation.

Mr. Stone concluded by saying

that he recognized the point to which Chairman Martin had referred.
Turning to another point, Mr. Swan noted the rather large volume
of repurchase agreements entered into in early February and the fact that
withdrawals before maturity were substantial.

He inquired whether the

repurchase agreements went out faster than anticipated.
Mr. Stone replied in the negative, stating that the repurchase
agreements went out about as anticipated.

It had been anticipated that

would be substantial withdrawals before maturity; he had had in mind

that about $50 million per day might be withdrawn, because the demand for
bills had been very good.

The repurchase agreements did not go out because

dealers found cheaper financing elsewhere, but rather because of the good

demand for bills.
Thereupon, upon motion duly made and
seconded, and by unanimous vote, the open
market transactions in Government securities
during the period January 29 through February 11,
1963, were approved, ratified, and confirmed.
Mr. Stone then presented the following statement:
It has come to my attention that we require the special
approval of the Committee of the action we took on January 15,

1963, in connection with reallocating the System Open Market
Account in order to bring the reserve ratio of the Federal
Reserve Bank of Boston up from the low level to which it had

fallen the preceding day.

The reason we require special ap

proval is that that action was taken to resolve a problem that
had not been contemplated in the rules governing reallocations.
At around 3 o'clock on the afternoon of January 15 it was
learned that the Boston Bank's reserve ratio had fallen to 25.7
per cent the previous day. Mr. Marsh, acting for me in my
absence, immediately contacted Mr. Latham of the Boston Bank
and it was agreed that, in accordance with paragraph 3 of the

rules governing reallocations, we would undertake a reallocation
to raise that Bank's reserve ratio to avoid the possibility of
the ratio slipping below 25 per cent, especially since we were
so close to the end of a statement week. The rules say that the
ratio of the Bank concerned shall be raised to the System aver
age, which was 32.2 per cent at that time. This meant that
$152 million of securities would have to be taken from the Boston
Bank. The difficulty was, however, that that Bank had only $74.9
million of unpledged securities--a situation not provided for in
the rules governing reallocation. A further complication was
present. We had sold securities to absorb reserves that day,
and it was quite possible that we might have to make additional
sales the following day. If so, and if we had reallocated all
of Boston's unpledged securities, it appeared that we might
have been unable to make delivery of all of the securities sold,
since the Federal Reserve Agent would not have been able to
release any of the Boston Bank's remaining securities, all of
which would then have been pledged. Under these circumstances,
Mr. Marsh and Mr. Latham agreed that of the $74.9 million unpledged
securities held by Boston, $70 million would be reallocated to
another Bank or Banks, thus raising Boston's ratio to 28.4 per cent;
and that $4.9 million would be left untouched in order to have at
least that many securities available for delivery in case it should
prove necessary to sell to absorb reserves the following day.
Leaving the Boston Bank with $4.9 million allowed room for about
$100 million in sales. After agreeing to this action with Mr.
Latham, Mr. Marsh contacted the Board staff and talked with Mr.
Conkling, who also agreed that such action was appropriate. Thus
$70 million in securities was taken from the Boston Bank and $4.9
million was left untouched.
Having thus resolved the problem, we immediately went to work

exploring proposals that we might wish to place before the Commit
tee to provide for such contingencies in the future, and I should
note that in the course of these explorations we found that the

Reserve Banks' 1943 plan covering the pledging of securities behind
the note issue provides an "escape valve" for a situation in which
a Reserve Bank (other than the New York Bank) has a shortage of
unpledged securities. The study now under way will, of course,

deal with the whole range of problems in connection with reallocating



the Account and the pledging of collateral behind the note
issue. In the meantime, however, I should appreciate the Committee's
approval of the January 15 action I have just outlined.

Upon motion duly made and seconded,
and by unanimous vote, the action taken on

January 15, 1963, as described by Mr. Stone,
was approved, ratified, and confirmed.
Before this meeting there had been distributed to the Committee
a report from the Special Manager of the System Open Market Account on foreign
exchange maket conditions and on Open Market Account and Treasury operations
in foreign currencies for the period January 29 through February 6, 1963,
together with a supplementary report covering the period February 7 through
February 11, 1963.

Copies of these reports have been placed in the files

of the Committee.
In comments based on the written reports and supplementing them

in certain respects, Mr. Coombs reviewed current and prospective information
relative to the U. S. gold stock and discussed the situation in the London

gold market.

Turning to foreign exchange market developments, Mr. Coombs

concentrated his remarks on recent sterling snd Canadian dollar rate move
ments, with explanatory remarks on the contributing factors.

In this con

nection, he reported that negotiations for an enlarged swap agreement between

the Federal Reserve and the Bank of England, as previously authorized by
the Committee, were still pending, partly due to technical complications.
He was hopeful, however, that the matter would be brought to a successful
conclusion before too long.

Thereupon, upon motion duly made and

seconded, and by unanimous vote, the System
Open Market Account transactions in foreign
currencies during the period January 29

through February 11, 1963, were approved,
ratified, and confirmed.
Mr. Coombs then presented certain recommendations, the first of
which was that the present $50 million swap arrangement between the Federal

Reserve and the Bank of England, which would mature February 28, 1963, be
renewed for another three months on the present terms and conditions,
assuming that an enlarged swap arrangement was not concluded before that time.
Renewal of the $50 million swap arrangement

with the Bank of England, as recommended by Mr.
Coombs, was authorized.
Mr. Coombs next recommended that authorization be given for
negotiations looking toward an increase in the present $50 million swap
arrangement with the Bank of France to a maximum of $200 million.

In dis

cussing the recommendation, he noted that such an enlargement of the swap
arrangement with the Bank of France would be in accord with actions taken
in certain other cases to place the respective swap facilities more in line
with potential balance of payments swings.

However, as long as the French

payments position continued in such heavy surplus, apparently reflecting
rather basic conditions, he would not anticipate drawing on the swap.


reply to a question, Mr. Coombs indicated that if negotiations for enlarge

ment of the swap were authorized, it would be his intent to discuss the
matter with the Treasury.

It was suggested that some expression from the

State Department might also be obtained.


There followed discussion of French balance of payments develop

ments, from which it appeared that in 1962 there had been a small deficit

on trade account but that French reserves had continued to rise about as
fast in the second half of the year as in the first half, after taking into
account debt repayments.
Thereupon, negotiations for an increase
in the $50 million swap arrangement with the
Bank of France to a maximum of $200 million,
as recommended by Mr. Coombs, were authorized.

Proceeding to his third recommendation, Mr. Coombs expressed the
view that from time to time useful opportunities might appear to cover the
short position developed by the System by virtue of certain swap drawings
by buying forward, at relatively favorable rates, the foreign currency con

Likewise, there was the possibility that useful opportunities might

appear to restrain an outflow of short-term funds arising out of interest
rate developments favoring a particular foreign currency by selling that

currency forward.

At present, he noted, the Guidelines for System Foreign

Currency Operations provided that any proposals to initiate forward opera
tions were to be submitted to the Open Market Committee for advance approval.
However, transactions such as he had in mind would have to be executed

His suggestion was that the Committee might want to grant

authority to buy forward certain foreign currencies--any of the foreign
currencies that the Federal Reserve Bank of New York was now authorized
to hold--to a total of $25 million, along with authority to sell such cur
rencies forward up to a total of $25 million.

It was his thought that this

degree of flexibility would permit useful experimentation.


During a discussion that followed, Mr. Coombs drew distinctions

between the forward operations that had been engaged in by the Treasury
and the kind of operations he would have in mind for System Account.


reply to a question, he indicated that the need for the granting of the
requested authority did not appear to be particularly urgent.


it was suggested that a memorandum on the subject be prepared so that the
matter might be studied more carefully by the Committee before a decision
was reached.

There being agreement with this procedural suggestion, it was

understood that a decision on Mr. Coombs' recommendation would be deferred
pending the availability of such a memorandum.
This concluded the discussion of System foreign currency operations
and related matters.

Accordingly, the Chairman called for presentation of

the usual staff economic and financial reports, and Mr. Noyes presented the
following statement on economic developments:
The budget and the accompanying proposals for tax reduction
and reform, appraisals of the longer run outlook for the economy,
and political developments in Europe and Canada have attracted so
much attention in recent weeks that a change in the current economic
situation might well have escaped one's notice. With this thought
in mind, I shall try to focus my review today on what appears to
have happened to the economy in December and January to see if it
shows any evidence of a fundamental change in the pace of economic
Taking first some of the broad measures of economic perform
ance, neither industrial production nor nonfarm employment have
broken decisively out of the narrow range in which they have moved
since the middle of last year. However, the industrial production
index for January is estimated down to 119 even, and December was
revised down to 119.2. Another broad measure of activity--retail
sales--is now also estimated to be down a little from December.
So we find these three important broad measures of economic
activity--production, employment, and retail trade--all off frac
tionally from the November level. In the case of retail trade,



however, it should be mentioned that the rise since summer is still

2-1/2 per cent, an annual rate of increase for the five-month period
as a whole of about 6 per cent.
Construction activity edged back up in January to a seasonally
adjusted annual rate of $62-1/2 billion, still below the record
October rate. A notable aspect of this was the relative strength
of private residential construction, which many observers had
expected to decline from last summer's advanced levels.

Over the two months as a whole, the stock market has been a
bullish factor, but it has shown some weakness more recently.

This is also true of the growth in bank credit, and especially
the improvement in business loan demand in December, which was
followed by about a seasonal decline in January.
From the data thus far available, it seems fair to generalize
that the December-January movement in the economy was largely
horizontal and that, if anything, we seem to have lost some of the
upward momentum displayed in the late fall and early winter. But
the difference is very small--much smaller than one might attribute
to the vagaries of the weather at this season, or to the effects
of dock, transit, and newspaper strikes. Thus, I would conclude
that there has been no significant change in the over-all economic
situation in recent weeks, in one direction,or the other.

Whether this, in itself, is a bearish or bullish factor is
not so clear today as at this stage of earlier cycles. Since we
have not yet experienced in this period of recovery and expansion
the business investment bulge that normally comes at this stage of
the cycle, it can be argued--as it is, for example, in this month's
issue of Fortune magazine--that each month during which activity
is maintained without the support of large scale inventory or plant

equipment expenditures is like "money in the bank"--in that it
leaves more investment to be carried out in the months ahead.
Others, especially those who follow closely the cyclical
indicators of the National Bureau, conclude that the economy
is balanced perilously close to a downturn, and that any loss

of forward momentum may well touch off a recessionary spiral.
These are logical possibilities, as they always are when the
economy is in a relatively balanced position--but it seems to
me that their proponents have to strain to convert them into
realistic probabilities. This leaves me where I have found
myself so often in recent months--with the conclusion that
there is not only little change currently, but also that there
is no basis in current developments for anticipating a dramatic
improvement or deterioration in economic activity.

Technical factors should operate in the direction of some
slight improvement in the broad measures of activity in February.



If this does not, in fact, materialize, we can expect a rather
rapid deterioration in the improved business sentiment that has
prevailed since early winter. Such a development, especially
if it were accompanied by increasing doubts as to the likelihood
of an early tax cut, might present a difficult problem for the
Committee, as there can be little doubt that optimism with
respect to the business outlook and expectation of an enlarged
deficit have played an important role in maintaining the level
of interest rates.
Let me add to this only one other observation, which will
also have a familiar ring. There is no evidence whatsoever in
the nonfinancial area to suggest the re-emergence of inflationary
pressures. Overtime at factories declined further last month.
Money wage rates showed the smallest rise from January to January
in any nonrecessionary year since World War II. In no important
area of production is there any evidence that current output is
pressing against capacity. In some instances it is a little
closer than it was a year ago--and there may be some investment
incentive in the relationships that are developing--but generally
markets for industrial products remain highly competitive, and
both material and product prices are moving in a very narrow
range, close to the recessionary lows of early 1961.
Mr. Ellis inquired whether it was more accurate to say that basically
there were no inflationary pressures in the economy at present or to say
that such pressures as existed were offset by other pressures, so that on

balance there had been no increase in wholesale commodity prices.
Mr. Noyes, in reply, noted that he had referred in his comments
only to the nonfinancial area.

He had not examined the financial area

with sufficient care to express a judgment.

In the nonfinancial area,

however, he saw nothing that he would describe as inflationary pressure.
There had been some price increases and some price declines, as is always
true in the economy, with these movements tending to offset one another.
He thought it difficult to take the position that a 2 per cent rise in money
wage rates from January to January was an inflationary factor.
by any standards of the postwar period.

It was low



Mr. Hayes expressed some concern that certain recent wage settle
ments, such as the dock strike settlement, were on the generous side, and
Mr. Noyes replied that one might foresee with concern the impact of certain

things that were taking place.

However, the whole range of wage settlements

had tended to become more moderate, with the passage of time, over the past
three years.

Mr. Hayes commented that in light of the balance of payments

situation it was important that they be extremely moderate.

Mr. Noyes agreed,

but added that he found it difficult to read a broad inflationary impact on
the economy into the wage statistics.
Mr. Shepardson said he could agree that wage settlements during the
past few years had been less out of line than earlier, and consequently
that they produced less inflationary pressure.

However, he felt it was an

overstatement to say that there were at present no inflationary pressures.
He suggested that wage costs in terms of output must, in fact, go down to
obtain improvement from the standpoint of the balance of payments.
Mr. Balderston commented that real estate and common stock prices
had been rising in a manner somewhat

reminiscent of developments prior to

the stock market collapse in 1929, in response to which Mr. Noyes observed
that stock market prices had been moving about sideways in the past couple

of weeks, which suggested to him that the inflationary steam that had
contributed to the recovery of the stock market in recent months may now have

Mr. Balderston then commented that one often read that wholesale

commodity prices were the best measure of the existence of inflationary




However, as he read the history of the second half of the

1920's, he had some doubt.

Mr. Noyes noted that here Mr. Balderston was

using a broader definition of inflationary pressures than he (Mr. Noyes)
had intended to imply.

He had been speaking in terms of the value of the

There followed a reference to the consumer dollar, and Mr. Noyes
noted that the index of consumer prices had risen last year by about 2
per cent.

However, the index went down in December.

Mr. Mitchell expressed

the opinion, in this connection, that the consumer price index had a built-in
bias on the up side.
Mr. Koch then presented the following statement on financial
Since the chart show presentation at our last meeting
covered financial developments over the last few months, I shall
focus my re.marks this morning on very recent developments and
particularly on those in the money and banking area that are
most direccly affected by open market operations.
Looking first at bank reserves, the volume of required
reserves behind private deposits has declined in the last few
weeks to a level about $200 million above the guideline, using
last June as a base. This compares with a level about $400
million above the guideline in late December and early January,
but is about equal to the average December level relative to
the guideline.
Free reserves have been somewhat lower in recent weeks,
averaging around $315 million in the three weeks ending
February 6 as compared with about $375 million in the three
preceding weeks. The tone of the money market has continued
somewhat more taut, with the Federal funds rate generally at
or just under the discount rate and with New York commercial bank
lending rates to Government securities dealers varying from about
3 to 3-1/2 per cent.
The seasonally adjusted money supply, after having increased
a billion dollars in the first half of January, decreased about
a billion and a half in the last half of the month. On average,
in January as a whole the money supply was about half a billion



dollars above the December average.

Time and savings deposits

at commercial banks increased in January at almost as rapid a

pace as a year ago immediately following the revision of Regula
tion Q.
If I may digress a bit at this point, I am continually
struck by the difficulty of interpreting the relevance of changes

in liquidity to monetary policy formulation.

The very concept of

liquidity, and particularly its relevance to spending, is by no
means clear and precise. Total liquid assets continue to rise

sharply, but so also does private short-term debt.

If one sub

tracts such debt from liquid assets, the recent rate of increase

of what might be called net liquidity is by no means as obvious
as that in gross liquidity.
For example, the short-term debt of business enterprises con
sidered as a group may now be about $3 billion larger than their
liquid asset holdings, whereas a year ago business liquid assets

exceeded short-term debt by about $5 billion.

Even in the case

of consumers, the ratio of their net liquidity, that is, their

liquid assets minus their short-term debt, to their spending
probably has actually declined somewhat over the past year or so.
Although these figures are only the roughest of estimates and
although they gloss over completely the question of the distribution
of both the liquidity and the debt within the broad sector groups,

they do not suggest any great excess of business or consumer

liquidity. Moreover, the adequacy or lack of adequacy of an economy's
liquidity cannot be judged in a vacuum. It must be judged in terms
of its contribution both to current spending and to potential
future spending.
Turning back to recent financial developments, 3-month
Treasury bill rates, apparently influenced greatly by Treasury

and Federal Reserve actions and by dealer expectations based on

such actions, have risen to just under the 3 per cent discount
rate. Longer term rates declined a little further in the first
half of January, but since then have firmed. The recent firmness
has reflected some pickup in activity in the capital markets,
particularly by State and local governments, as well as growing
caution on the part of market professionals on the likely effect

on interest rates of a prospective larger Federal deficit,

continuing gold losses, and an acknowledged somewhat less easy

monetary policy.

Most recently, following the Treasury's announcement

of a three-pronged operation to lengthen the maturity structure of
the Federal debt, longer rates edged up further.

Throughout the first half of January, bank credit and monetary
developments appeared to have been as expansionary as those in the

latter months of last year.

Commercial banks and Government

securities dealers, for example, were apparently as eager to hold

positions in securities as they were earlier.

This was somewhat

puzzling in view of the slightly firmer tone in money markets and
the somewhat less easy bank reserve positions that prevailed in

the period.



In the last three weeks, however, there are signs of less
stimulative activity in banking and money markets.

Bank reserves

and money are declining and the bank credit expansion has appar
ently slackened somewhat. Price adjustments have been needed to
move some cf the new corporate and municipal security issues.
This situation may be only a temporary phenomenon--three weeks
is a very short period. Or it may reflect the emergence of more
usual forces for this time of year.
It is still too early to
tell whether it reflects either a lessening in demands for bank
financing or a market response to less easy monetary conditions,
but it is a situation that merits close attention.

In the weeks immediately ahead, the Treasury financing
calendar continues to be full, with the advance refunding and
some additional cash financing in immediate prospect. This full
calendar would again make a change in monetary policy difficult.
Market factors affecting reserve availability over the next three
weeks will be confined mainly to the usual intra-monthly swings
in float and currency in circulation. These factors will provide

about half a billion dollars of reserves to the banking system in
the week ending February 20 and drain about a similar amount in
the two following weeks. Maturing System repurchase agreements
will absorb most of the reserve buildup expected next week.
Thereafter, some additional System purchases of Government securities
are likely to be needed to supply reserves, particularly in view
of the expected Treasury cash financing in early March.
Mr. Furth presented the following statement with respect to U. S.

balance of payments:
Net transfers of gold, convertible foreign currencies, and

liquid dollars to foreigners in January have been tentatively
estimated at $400 million. For purposes of analysis we should
increase this figure by amounts reflecting a further rise in
illiquid U. S. Government obligations and the reflux of funds
borrowed over the year-end by foreign banks for window dressing.
On the other hand, we should reduce it by amounts reflecting an
unusual bunching of long-term capital outflows and the effects
of the dock strike. Adjusting the figure accordingly, we mayeven more tentatively--estimate the January payments deficit at
about $300 million, an amount about equal to the monthly average
both of the fourth quarter and of the entire year 1962 (disre
garding debt prepayments as well as the various statistical


Should this estimate prove approximately correct,

it would mean that, contrary to the first impression conveyed by



the weekly figures, January did not show a serious further
deterioration in our balance of payments, although it obviously

did not show an improvement either.
The last week of January and the first week of February
saw net transfers from abroad to the United States. But if these
figures are again adjusted for extraordinary transactions and the
probable effect of the cessation of the dock strike, there is
still no conclusive evidence of any significant change to the
better. Moreover, a reliable estimate of the influence of the
dock strike on the deficit will have to wait for the trade
figures for both January and February; until then, any assessment of the situation will remain guesswork.

In the longer run, our deficit may be decisively affected
by the repercussions of recent political developments in Europe
and Canada. The French veto of Britain's entry into the Common
Market has obviously been a serious diplomatic blow to the United
States and the free world in general.


from the purely economic

point of view, it may well turn out to be a blessing in disguise.
Our exports to both Continental Europe and Britain will
benefit as they will compete on more equal terms, in Britain with
exports from Europe, and in Europe with exports from Britain.
And our capital outflow to Continental Europe and Britain will
probably decline as U. S. firms and investors revise their
estimates of the long-run political and economic prospects of

those areas.
More fundamentally, it is true that the French veto probably
has aggravated Britain's economic problems, and that market apprehension about sterling might cause apprehension about the dollar.
But at the same time the French veto may induce the United Kingdom
to seek closer commercial and financial cooperation with the
Western Hemisphere, as a substitute for such cooperation with
Continental Europe.
After all, the invigorating effects of
increased import competition, which the British Government
expected from a customs union with Continental Europe, could just
as well come from the United States.
And if pro-American forces
win the forthcoming Canadian elections, Canada, too, may want closer
economic ties with the United States.
Unification of the two dollars

and the pound sterling would have far-reaching effects on our payments
balance. If flows of funds between New York and Montreal as well
as between New York and London became domestic rather than international
movements, our deficit on capital account would virtually disappear
in the short-term sector, and be substantially reduced in the longterm sector.
The idea of monetary union between the United States, Britain,
and Canada may be derided as utopian.
But a few years ago the idea
of economic and political union between France and Germany would

have been considered even more ridiculous.
well as

to judges applies

To central bankers as

the word of Mr. Justice Brandeis:

we would be guided by reason, we must let our minds be bold."


-19The Chairman then called for the go-around of comments and views

with respect to economic conditions and monetary policy beginning with
Mr. Hayes, who presented the following statement:
In the short interval since our last meeting there seems
to have been no significant change in the business situation.
Retail sales have shown continued strength, and the outlook
for residertial construction may be a shade better, but
offsetting this, at least in the area of sentiment, is the
considerable uncertainty arising from the poor reception accorded
the Administration's tax proposals and the disturbing setbacks
in Europe and Canada for the economic and military unity of
the Free World. The sharp shrinkage in total bank credit and
bank loans in the four weeks ending January 30 casts some
doubt on the impression given by earlier data of a marked
strengthening in underlying loan demand. Perhaps the behavior
of the credit statistics around the year-end reflects in good
part a change in the seasonal pattern. There has been no
important change in most measures of over-all liquidity, and it
is noteworthy that the total gain in the money supply since the
business cycle trough is now greater than it was in either of the
preceding business upswings.
On the international scene, the basic balance of payments
outlook remains decidedly gloomy, with long-term capital out
flows playing a major role in January and probably in the months
to come. I find especially disturbing the almost fatalistic
acceptance, apparent in some Government circles, of the prospect
that equilibrium will not be reached until around 1965, if then.
The recent estimate of the balance of payments outlook for 1963
made by the Department of Commerce indicates that, in the absence
of a concerted effort vigorously pursued. the over-all deficit
in 1963 may well be larger than in 1962. The probable foreign
reaction to such a development is not pleasant to contemplate.
Imports are expected to rise more rapidly than exports, and there
will probably be fewer special Government transactions to soften
the impact of this and other adverse factors. Admittedly, there
is a good deal of uncertainty as to the effects on our balance
of payments of the current economic and political difficulties
of Canada and Britain--but while they may conceivably afford
our own balance of payments some temporary relief, this is
clearly a slender reed on which to lean.
As was true at our last meeting, the Treasury's financing
program would seem to preclude any immediate change in monetary
policy. From an "even-keel" standpoint there will be a brief
period around mid-March when monetary policy decisions could
be made without particular reference to Treasury financing.



Parenthetically, I might add that although the new long-term
bond auction will probably be announced March 13, the terms
will not be announced until two weeks later. Thus, it might
be possible to make some monetary policy decisions in that

Looking beyond the next three weeks, it seems to me quite
probable that we shall have to come more firmly to grips with
the balance of payments problem. The question may well be
raised whether the monetary policy of the last two years, which
has made a brave and sincere effort to cope simultaneously with
excessive slack in the domestic economy and with a persistent
deficit in international payments, without being able to make
a conclusive contribution in either area, may still be regarded
as a viable policy. It seems to me that we are a good deal
closer than we have been to a crisis on the international front.
On the domestic front, the more pessimistic analysts do not
seem to anticipate anything more serious than the continuation

of a sluggish performance.

For these reasons, I am inclined to

think that a more determined attack than any that has yet been
undertaken must be launched in an attempt to reach a decisive
solution of the balance of payments deficit problem, which has

in turn been casting a long shadow on the whole domestic sit

uation. I can see no justifica ion for delaying such a move
until a crisis is actually upon us.
I am quite aware that a decisive move toward less monetary
ease would carry some risks to the domestic economy and might
invite severe criticism of the System. This of course highlights

the vital need for a prompt and sizable tax cut to provide
stronger incentives in the economy, even if the reform aspects

would have to be deferred till another year. I am also aware
that the magnitude of the balance of payments problem is much
too great to be solved by monetary policy alone.
monetary policy can and should play an important part, and I

would hope that it can do so simultaneously with a new, decisive,
and well-publicized program on the part of the Administration
to achieve equilibrium in our international payments, including
a substantial net reduction in military and aid disbursements
abroad and a firm policy toward greater discipline in the area
of production costs.
For the time being, I should think the directive might
appropriately be left substantially unchanged.

Mr. Ellis reported that there appeared to have been no material

change in conditions in the New England area.
continued its sideways movement.

The regional economy

The Reserve Bank had been looking at

manufacturing activity as a sector where any distinct trend might show



up first.

At the regional level, however, no evidence could be found of

a trend having been established one way or the other.

At the end of 1962,

the New England production index was at a level identical with the end of
the preceding year, as compared with a 4-point rise in the national index
of industrial production.

The man-hour index in the District was still

2 points below the year-earlier level, while manufacturing employment,
seasonally adjusted, showed no change in December.

The January survey

of purchasing agents revealed some increase in the frequency of reports
of an upturn in new orders, but orders received by manufacturers in
Massachusetts in December showed a decline for the second consecutive
month on a year-to-year basis.
First District weekly reporting banks continued to show a
declining loan trend, with the drop since December now amounting to
$90 million.

This was fairly close to the seasonal pattern.


commercial and industrial loans were down about: $60 million, more than
expected on a seasonal basis since December.
Mr. Ellis expressed himself as satisfied with the conduct of
open market operations and said he endorsed the reasoning expressed
earlier by Mr. Stone with regard to transactions in coupon issues.


general, the market appeared to continue to operate quite smoothly within
the guidelines that had been in effect since the shift in December to a
policy of slightly less ease.

Required reserves behind private demand

deposits were now around $200 million, rather than $400 million, above
the so-called growth guideline, while bank reserves and the money supply
expanded in January at a less rapid rate than in previous months.


With respect to the question whether the System should consider

policy changes cut of deference to the possibility of an international
payments crisis, Mr. Ellis said his thought would be to wait because the
immediate future trend of the economy was yet to be made clear.

If the

economy should break strongly on the up side, the case for policy moves
in light of the international situation would be strong.

On the other

hand, if the economy should break on the down side, the seriousness of
shifting to a less easy policy must be considered; in that event, the
opportunity for the System to move aggressively might be lessened.
the present circumstances, therefore, he would counsel waiting.



continued to feel that the current posture of monetary policy was
appropriate until some definite economic trend appeared.
Turning to the policy directive, Mr. Ellis said he would like to
feel that the directive was flexible enough to permit recording changes in
the economic and financial situation as they developed.

As to the second

paragraph of the present directive, he saw little real need for change
at this time except to refer to the forthcoming three-week period instead
of the forthcoming two-week period.

As to the first paragraph, he noted

that the current directive had been redrafted somewhat by the Committee
staff to provide a basis for discussion at this meeting.

First, the

draft would refer to a policy of accommodating moderate growth in bank
credit and the money supply (rather than a growth more moderate than in
recent months), and this change seemed appropriate.

Second, the draft



would eliminate the reference to the "recent

deterioration" in the U.


balance of payments and would substitute a reference to the "continuing
adverse" balance of payments position.

This change also seemed appropriate.

Mr. Ellis also noted that the reference in the current policy
directive to an absence of inflationary pressures had not been changed in
the draft suggested by the staff.

He thought that in using this language

the Committee had not meant to imply that no inflationary pressures
could be found; instead, that they were in limited areas and were offset
by other pressures to produce a stable level of wholesale commodity

He suggested that the phrase might be dropped from the directive,

that the word "general" might be inserted ahead of inflationary pressures,
or that the word "absence" might be modified.
With respect to the second paragraph of the directive, Mr. Ellis
noted that it would call for open market operations to be conducted
with a view to maintaining about the same degree of firmness in the
money market "and to offsetting downward pressures on short-term interest
rates," while providing for continued

moderate reserve expansion.


tion had been raised by the staff as to whether the Committee would feel

that the quoted phrase should be retained or dropped.

Mr. Ellis said he

would be inclined to retain it, along with the remainder of the language
now found in the second paragraph of the directive.
Mr. Irons reported that there had been only very moderate changes
in Eleventh District economic conditions, with perhaps on balance a slight

strengthening of activity.

Admittedly, however, within narrow limits an



observer could read the signs almost any way he chose.

In January, depart

ment store sales were up from the year-earlier level, but they were down
from the December level.

Industrial production in the District was down

Employment figures had improved slightly, while unemployment

was around 4.8 or 4.9 per cent of the labor force on an unadjusted basis.
Construction activity continued strong, and the number of awards in
December suggested further increases.
improved and refining was up slightly.
were at a record level.

In petroleum, production had
In agriculture, 1962 receipts

Losses due to recent weather conditions were

uncertain, but it did not appear that they were likely to be as serious
as some had anticipated.
Mr. Irons said that District banking developments reflected
mostly seasonal movements.

Loans were down about seasonally, with most of

the drop in commercial and industrial loans.

Investments also were down;

banks reduced their holdings of Treasury bills, but this was offset
somewhat by increases in portfolios of State and local government issues.
Demand deposits were off seasonally, while time deposits continued to


There had been some increase in net purchases of Federal funds

by District banks during the past period.

This reflected the activity of

a very few banks on the buying side, since most of the reporting banks
were net sellers.

There was not much borrowing from the Reserve Bank.

Banks claimed that they were seeking loans and were in a position to take

care of them.



Mr. Irons expressed himself as satisfied with the implementa
tion of monetary policy during the past two weeks.

Interest rates

were well placed, in his opinion, in relation to the discount rate,
which might be looked upon as the basic central rate.

Bill rates had

been quite close to the discount rate, while the Federal funds rate had
stayed around the discount rate, and he considered these relationships

He did not see evidence of inadequate reserve availability

in relation to credit demands.

On the international side of the picture,

the U. S. rate structure appeared quite good in relation to foreign rates,
all things considered, particularly in light of the recent weakness in
sterling and the Canadian dollar.
At the present time, Mr. Irons commented, there were a number of
major uncertainties in the picture.

In the domestic picture, for example,

there was uncertainty as to what would happen to the Administration's
proposals for tax reduction and reform; in the international sphere there
was the uncertainty engendered by the French ;eto of British entry into
the European Common Market.

Altogether, this did not seem to be a time

for any overt change in policy. At the moment, since he did not see that
a payments crisis was immediately at hand, he would hesitate to make
any change from present policy on that score.

Following that line of

reasoning, it would seem appropriate if the bill rate was around 2.80
2.90 per cent, with the Federal funds rate around the discount rate,



a reasonably low level of member bank borrowing--perhaps around $100
million, and free reserves around $300 million plus or minus.
Mr. Irons said that he would have no objection to minor changes
in the policy directive.

On the other hand, he would just as soon con

tinue under the existing directive, which would provide for continuing
the policy that had prevailed for the past several weeks.

He would not

change the discount rate at this time.
Mr. Swan said that the Twelfth District picture showed no appre
ciable change in t.he past two weeks.

Cne comment in the area of price

developments might be of some interest in view of the discussion earlier
during this meeting.

While petroleum production was off somewhat during

January, there was an increase in gasoline stocks, and this had been
translated almost immediately into price weakness at the retail level in
most of the major marketing areas on the West Coast.

District weekly reporting banks showed a considerably smaller
loan decline in January than in the same month of 1962 or 1961, and the

decline was also considerably smaller, relatively speaking, than at all
weekly reporting banks.

The reason for this development was not entirely

clear, although one obvious sustaining factor was the continuing rise in
real estate loan portfolios.

It was Mr. Swan's impression from scattered indications that, since
the statistics had not shown the improvement anticipated in the change in

business sentiment that occurred a few months ago, business sentiment was
beginning to back up to the statistics.


Turning to policy, Mr. Swan said it seemed to him that, with

no appreciable change in the business situation, with a number of
Treasury financing operations scheduled for the near future, and
with the many uncertainties obscuring the picture both internationally
and domestically, this was not a time for a change in monetary

He noted, however, that total reserves had dropped rather

sharply after mid-January, even though they were still above the guide
line, that member bank borrowing was up rather substantially in the week
of February 6, and that bill rates had been edging up a few points.


seemed to him, therefore, that the "even keel" of the past two weeks
had in it what might be referred to as a slight upward tilt.
of a two-week period, this was not too significant.

In terms

Over a somewhat

longer period, however, it seemed to him that the Committee could get into
a situation somewhat different from what it had anticipated.

Thus, when he

said that he favored no change in policy at this time, he meant no change
from conditions that existed three weeks or a month ago rather than from
those that existed today.

He recognized that the serious nature of the

balance of payments problem precluded any significant reductions in
interest rates.

He was not sure, however, that a gradual edging up of

the bill rate accomplished very much, or that much could be accomplished
unless the System was prepared to see a significant upward shift in the whole

interest rate structure.

In his opinion, this was not the point at which

the Committee would want to consider such a move, in light of either the
domestic situation or the immediate international situation.



As to the policy directive, Mr. Swan said he would be quite
willing to accept the changes contemplated by the staff draft.
Mr. Deming commented that relatively little new information about
the Ninth District had become available during the past two weeks.


liminary January figures on nonagricultural employment indicated a slight
improvement (on a seasonally adjusted basis) from December--about 1 per
cent, and about 3 per cent over January 1962.

While the number of people

drawing unemployment compensation in January was some 14 per cent below
the year-ago level,

new claims were a bit higher than in January 1962.

Both total unemployed and newly unemployed in January increased by about
the normal seasonal amount.

Department store sales in January were 3

per cent ahead of the same month in 1962, but they were down 3 per cent
(seasonally adjusted) from December.
With regard to District banking developments, Mr. Deming said
that January saw substantially larger than seasonal deposit declines and
loan decreases at city banks, with about normal deposit and loan develop
ments at country banks.

At both classes of banks, investment totals

behaved about as usual.

The performance of loans and deposits at city

banks might be no more than a reaction to the exceptionally strong behavior
of both loans and deposits throughout the last quarter of 1962.


the city banks seemed to be a little less liquid than they had been,
they were not borrowing from the Reserve Bank.

However, they had been

rather steady buyers of Federal funds in the past few weeks.


Mr. Deming expressed the view that the Desk had performed quite

well in the past two weeks, although he shared Mr. Swan's view that the
even keel perhaps; had a slight upward tilt.

He had some impression that

the market was just a shade firmer than he would have liked to see it.
However, he did not have too much in the way of solid facts to support
this impression.

One could not quibble over a rise of a couple of

basis points in bill rates, and dealer loan rates had remained fairly

On the other hand, he saw no need to push bill rates higher

at the present time, particularly with the covered bill yield differential
running in favor of New York.

Also, the forthcoming increase in the

supply of bills probably would work in the direction of a firming of
bill rates.
Looking ahead, Mr. Deming indicated that he felt a continuation
of even keel policy would be appropriate for the next three weeks.


would not change policy during that period, nor would he change the dis
count rate.

He had no particularly strong feeling about any of the

suggestions with regard to the policy directive.

On balance, he would be

inclined to leave in the second paragraph the phrase that called for
offsetting downward pressures on short-term interest rates, if it should be
the decision of the Committee to make no change in policy at this time,
even though from a technical point of view it might be argued that there
would be no need to offset downward pressures in the next three weeks and
the phrase therefore did not need to be in the directive.


On the longer run situation, Mr. Deming indicated that he shared

the concern expressed by Mr. Hayes regarding the balance of payments

situation, but that he also shared the point of view expressed by Messrs.
Ellis and Swan.

It seemed to him, as apparently it did to some others,

that System policy had been about as good as could have been expected over
the past year and that it had accomplished about what the Committee hoped
to do.

He viewed the short-term rate policy followed during this period

as rather passive and defensive rather than a strong influence.


was as he thought it should be, in light of the current and prospective
economic situation.

He did not see a great deal that monetary policy

could do, short of a crisis situation, in the balance of payments area.
The problem seemed to center fundamentally in the trade balance and ir
the area of long-term capital outflow, and any monetary policy action
that was strong enough to be effective in regard to long-term capital
outflow would be out of line with current and prospective domestic
economic developments.

In short, he did not,see how the System could

do much more than it was doing at present.

He doubted the desirability

of any further jacking up of short-term rates from present levels.
Mr. Scanlon reported that Seventh District business conditions
had shown no significant change in recent weeks.

Retail sales continued

in good volume, steel production remained fairly stable, and production
of automobiles was expected to continue at the current daily rate through

the first quarter.

It was now expected that any accumulation of steel



inventories would remain moderate, at least until March.
was seen to expect early improvement in employment.

Little reason

The construction

outlook, judging by contract awards, continued less promising in the
District than in the nation.
As to banking developments, Mr. Scanlon said that the decline
in total loans at District weekly reporting banks was about normal for

Reserve positions of the large District banks had shown fairly

large week-to-week swings recently, but on the whole had been somewhat
tighter than in early January.

Chicago banks had started their usual

seasonal accumulation of bills preliminary to the April 1 assessment
of personal property for tax purposes.

Borrowing at the discount

window had increased since mid-January, and in the latter half of the
month Seventh District banks accounted for over 40 per cent of the
U. S. total.

Time deposits had continued to rise rapidly, with the

major expansion in the "other time" category, largely certificates
of deposit.

The volume of certificates of deposit with September

maturities offered by dealers suggested that banks were actively

competing with Treasury bills and dealer repurchase agreements for
short-term corporate funds accumulated for payment of Federal income

Turning to policy, Mr. Scanlon expressed the feeling that as
long as rates were high enough to prevent a significant outflow of
short-term funds the Committee should continue to provide reserves



to meet additional demands for credit and money.

Some moderation in

the rate of growth of bank credit had already taken place, and the
money market had firmed.

Meanwhile the business outlook was still

uncertain, and further expansion of activities seemed desirable.
Mr. Scanlon agreed with those who felt that there should be
no change in policy at this time.

He would not change the discount

He had not come prepared to propose any changes in the direc

tive, but he would have no objection to the technical changes that
had been suggested.
Mr. Clay commented that it was apparent that the level of
domestic economic activity was increasing very slowly.

In fact, the

measures of employment and output continued to show no change or

small downward movements.

The strength of consumer spending in

recent months, notably in automobiles, was an encouraging development,
but evidence of a pronounced upward movement in the economy still was

At the same time the international balance of payments

problem remained very difficult.. The Committee was faced not only
with the question as to what monetary policy could do about the
problem but also the question as to what effect such monetary policy
action would have on the domestic economy.
Mr. Clay said it was difficult for him to see how anything
less than a sharp change in monetary policy could have much effect

on the international flow of funds.

The size of the U. S. capital



market, the state of domestic credit availability, and the marked spread

between U. S. interest rates and those on relevant credit instruments in
foreign markets supported such a view.

In contemplating the desirability

of such a policy, it would seem that the Committee must be mindful of
the fact that policies that discourage domestic investment may make
foreign investment more attractive for domestic capital.

Apart from

such considerations, the domestic economy continued to need the sus
taining force of expansionary monetary policy.
Accordingly, Mr. Clay suggested that essentially the same
policy as agreed upon at the January 29 Committee meeting be continued,
along with a continuation of the same Reserve Bank discount rate.


sumably the sense of the policy directive also could remain unchanged.
Mr. Heflin reported that the Fifth District business outlook
had not changed significantly in the past two weeks.

The gradual

declines in employment and hours that had characterized most manu
facturing industries for several months appeared to be continuing.
In contrast, employment in most nonmanufacturing areas had remained
steady or achieved further small gains to record or near-record

Textile producers continued to operate under a dual handicap.

First, they were paying $42.50 more per bale for cotton than their
foreign competitors.

Second, forward planning remained hazardous,

and orders at all levels continued to be based almost entirely on
immediate needs.

Action to eliminate or reduce the price differential



seemed assured, but how or when this would influence prices of cotton
and cotton goods remained a mystery.

Currently the most publicized

plan called for subsidy payments equal to the foreign subsidy to be

made in kind to domestic textile producers.
numerous obstacles, however.

The proposal faced

Other plans called for:

(1) a smaller

subsidy to domestic users on the theory that transportation costs

would offset the rest of the advantage currently enjoyed by foreign
competitors; (2) elimination or reduction of the export subsidy;
an equalization fee on imports, an idea rejected last fall by the
Tariff Commission.

The equalization fee would leave foreign and

domestic cotton prices unchanged but would raise the price of
imported cotton goods to the extent of $42.50 for each bale of
cotton they contained.
Mr. Robertson presented the fcllowing statement:
The available evidence still suggests to me that the
pace of business expansion is undesirably slow. The in
crease in market sales and gross national product does not
seem to be much faster than the growth in our productive
capacity, and we continue to have large numbers of unem
ployed men and machines. The fall business pick-up
apparently was not enough to trigger any vigorous and
broadly based upsurge.
With this thought in mind, I have become increas
ingly concerned as to the possible adverse consequences
of the current less easy monetary policy. Interest
rates have crept up counter-seasonally since the year
end. Early January figures on over-all bank credit

and the money supply suggested a continuation into
1963 of the momentum of last fall's strong advance,

but later figures show that the rise has been sharply




slowed, with reversals in key elements that may be going
beyond a simple unwinding of the temporary December bulge.

The money supply dropped off markedly in the last half of
January. Reserve utilization by the banking system has
slid back throughout January, with some of the sharper
drops below seasonal patterns occurring in the latest


Total bank credit growth slowed during January,

and loan demand flattened out, in contrast to the vigor
of demands by borrowers throughout the fall.
I do not

think we can sit idly by if this kind of trend continues.
Nor do I believe we can comfortably assume that it is in
no way related to our present less easy policy.
On the international financial side, interest rate
differentials with the other major money markets are more
favorable, and the nature of the political stresses that
have developed in both Canada and Britain probably are
going to dampen if not reverse capital flows in those
directions for a time. This would seem to indicate
that at the moment we have a little more leeway than
before for using monetary policy flexibly.
Once again the Treasury financing schedule seems to
preclude any significant move on our part before the next
meeting. I would suggest, however, that in the time

between now and March 5 we all pay particular attention
to the flow of evidence regarding bank credit and mone

tary changes.

If the apparent contractive tendency of

recent weeks persists, then I believe we should come
prepared to consider a policy of somewhat greater ease
at our next session. In the meantime, I, for one, would
like to see the Desk pursue the traditional "even keel,"
but with its day-to-day doubts resolved a little more on
the side of ease than has been characteristic of recent
As to the policy directive, Mr. Robertson expressed concurrence
with the draft that had been suggested by the staff.

He would favor

eliminating from the second paragraph the reference to offsetting
downward pressures on short-term interest rates.
Mr. Shepardson expressed agreement with the view that the

demestic economy did not seem to be moving ahead with any great



vigor at the present time.

He felt, however, that the deterring fac

tors were outside the scope of monetary policy and that they had to
be dealt with by other means.

Accordingly, he believed that the

present posture of System policy was appropriate.

He did not see

any indication that monetary policy was exerting repressive or
detrimental effects.

Required reserves against private demand

deposits had slackened from their end-of-year peak, but they seemed
to have turned up in the past week or so, and they were still con
siderably above the so-called guideline.
Mr. Shepardson noted that the existing policy directive ex
pressed a policy of accommodating growth in bank credit and the money
supply more moderate than in recent months.

It also called for open

market operations with a view to providing for continued moderate re
serve expansion.

The point he wished to emphasize was that the direc

tive called for continuing growth at a moderate rate, not restraint
or cutting back.

He had thought that such a directive was appropriate

at the January 29 meeting, and he felt it was still appropriate, for
he would like to see the rate of increase in required reserves move a
little closer to the guideline than it had over the past several months.
Mr. Shepardson indicated that he would be inclined to agree
with changes in the directive along the lines mentioned by Mr. Ellis.
As at the January 29 meeting, however, he had a question about the
appropriateness of a flat reference to an absence of inflationary




In his opinion, there were continuing inflationary pressures.

For example, the terms of the dock strike settlement went beyond the
Administration's so-called guidelines, and wage pressures were inherent

in a number cf present or pending strike activities.
a continuing rise in farm land prices.

Also, there was

Those were only a few of the

areas where he saw continuing inflationary pressures.

They may not

yet have resulted in significant wholesale commodity price increases,
partly because of a continuing squeeze on profit margins, but they
were reflected one way or another in agricultural and consumer prices.

It had been suggested that a one or two per cent annual rate of in
crease in money wage costs was not significant, but when this country
was trying to get in a more favorable competitive position vis-a-vis
the rest of the world, any increase was on the wrong side.

In his

opinion, the reference in the directive to an absence of inflationary
pressures should be eliminated or modified.
As to the course of monetary policy, Mr. Shepardson said he
saw no alternative at the moment except to continue prevailing policy.
He thought the terms of the policy directive had been implemented
reasonably well by Desk operations during the past two-week period.
Mr. Mitchell referred to the comments that had been made about
the effect of price changes on the competitive position of this country

in world trade and asked the Committee to ponder for a moment what a
10, 15, or 20 per cent reduction in interest rates would do in terms



of stimulating the economy.

He went on to express the view that the

sustained program of maintaining the short-term rate had introduced
abnormalities that would prove troublesome for the U. S. economy.
Referring to the difficulties that were involved when the pegging of
interest rates on Government securities was terminated in the early
1950's, he suggested that the System was again following a practice
that could result in a substantial problem.
As to the immediate future, Mr. Mitchell said he could see no
alternative except to continue prevailing policy and maintain an even

As to the directive, he was favorably inclined toward the draft

suggested by the staff except in one respect.

This related to the

statement that it was the Committee's current policy to accommodate
moderate growth in the money supply.

He felt that the Committee really

wanted to accommodate moderate growth in bank credit, but he was not
so sure when it came to the money supply.

He did not know precisely

what was meant by the statement in the directive and therefore wculd
suggest omitting it.

However, in the second sentence, where the

directive stated that the Committee's policy took into account, among
other things, the substantial increase in demand deposits in recent
months, he would substitute "money supply" for demand deposits.


him, this would be more in keeping with what he understood to be the

Committee's thinking.


In a discussion based on Mr. Mitchell's comments regarding the

directive, Mr. Deming indicated that he would concur fully in the
changes Mr. Mitchell had suggested, these being in line with views
he (Mr. Deming) had expressed at recent Committee meetings.


Bopp noted that a decline of $1.5 million in the money supply,
seasonally adjusted, in the second half of January had been reported.

It was his feeling, however, that the seasonal adjustments might not
have been worked out too well.

The Committee had been encouraged in

recent years by end-of-year expansion, but then there had been re
versals after the turn of the year.

He was not at all sure about

longer run significance of the latest reported decline.


Mr. Mitchell

said he would be prepared to identify the period of growth in the
money supply as October-December, and Mr. Young commented that the
words "in recent months" had been included in the draft directive
for the purpose of meeting that point.
Mr. Fulton stated that in the Fourth District automobile
sales provided the only unblemished evidence of positive expansion
in January.

However, there were other elements of maintained

strength for the month as a whole, and no serious setbacks.


general tone of business seemed good, without the usual January
Steel output faded somewhat as the month progressed but re

bounded in the week ended February 9 to the highest level of the year.



New orders were reported to be showing substantial improvement, though
they were smaller than had been hoped for earlier.

Part of the increase

in production in December had been attributable to the build-up of mill
inventories, which were now being finished and shipped.

Thus far,

there was little evidence of a pronounced increase in customers'
inventories of steel.

Most buying was for current use.

Unemployment had edged upward on a seasonally adjusted basis,
apparently reflecting primarily the effect of the continuance of
severe cold weather.

Construction had turned up in the fourth

quarter of 1962 in all categories, with heavy engineering contracts
especially strong.

In the past week a permit for a $20 million office

building was issued in Cleveland, which would boost the figures sub
stantially for February.

Department store sales retreated slightly

from the high December totals in the first five weeks of this year,
with weather conditions undoubtedly playing a major part in the drop.
Bank debits rose 4.6 per cent in January from the December total and
stood about 10 per cent higher than the same month a year ago.

Earning assets at District reporting member banks declined
in January.

The decline in total loans was the largest for the

period in the past four years.

Business loans, seasonally adjusted,

declined comparably to prior years, but loans on securities were in
large volume.


Turning to policy considerations, Mr. Fulton said that perhaps

he was a little more optimistic than some others who had spoken.


felt that this was a period of low visibility and that it would be
desirable to wait for the economic outlook to become clearer before
taking any overt action.

It seemed to him, however, that there were

signs of underlying strength in the economy, as evidenced by new
orders for machine tools and the recent upturn in steel production.
The dock strike had been terminated, with what was in his opinion
a very bad settlement.

There were tax proposals before the Congress

that were unsettling, and the Cuban problem continued.

Along with

these factors, there had been bad weather conditions for some time.
It was difficult to see how there could be clear economic visibility

in those circumstances.
In his opinion, Mr. Fulton said, the Desk had done a good job
in the past two weeks.

He was not displeased about the slight trend

toward restriction of reserve availability.

Aside from the fact that

an even keel was called for by the Treasury financing program, he felt
that the policy posture of the System was appropriate.

As to the

policy directive, he would agree with the suggestions made by Mr.

Mr. Bopp reported that business in the Third District had not
improved in recent weeks.

December indications had ranged from

mediocre to unsatisfactory, and the sparse data for January showed



no trend.

The labor force status was unhealthy; output decreased in

December; and the demand for labor remained poor.

The most dramatic

recent event was a three-week transportation strike in Philadelphia.
Central city department store sales were off more than 40 per cent
during this period.
Seasonal factors had dominated Third District banking sta
tistics over the past several weeks.

Loans and investments at

reporting banks and deposits at all member banks had followed the
descending path typical around this time of year.

Pressure on

reserve positions had at the same time eased considerably.
Mr. Bopp remarked that, as the Committee was aware, he had
tended for some time to favor an easier policy than that favored by
the majority of the Open Market Committee.

However, now that the

Committee had moved toward a slightly less easy position, and now
that this had become generally understood by the public, he would
find it difficult to advocate a return to the former position.


present, therefore, he would recommend little change in policy,
interpreting this to mean a continuation of about the same reserve
positions and money rates, with no change in the discount rate.


directive along the lines proposed by the staff would appear satis
At the same time, Mr. Bopp added, he felt it was important

to watch developments closely for signs that might call for greater


With economic activity virtually on dead center for many months,

it would be important to detect early signs of the direction in which
the economy moved off the plateau.
Mr. Eryan commented that it was difficult to say that anything
significant had happened in the Sixth District in the past several

At the same time, he got an impression of a gradual weakening

of the District economy, although the statistics undoubtedly were
affected by the severe weather.

December nonfarm employment was off

in every State in the District.

Manufacturing employment, personal

income, and average weekly hours also were off, while insured unem
ployment was up.
of weakness.

The net of these figures was a general impression

They might be counteracted by saying that department

store sales have shown strength, a development that was confirmed
by the broader measures of retail trade.

Construction contracts

had taken a spurt, but this was really attributable to one large
public utility project.

While he could agree with the view that

visibility was not good at present, nevertheless he did not have
the impression that the Sixth District economy was moving upward.
As to the national economy, it appeared to be about on dead center.
It might be that the national economy was in the process of making
adjustments that would allow it to come off the plateau on the up
side, but he was not at all certain that that would happen.


Mr. Bryan recalled that at the January 29 meeting he had ex

pressed the view that the Committee ought to aim for total reserves
on about the 3 per cent trend line, which came out to about $19.6
billion, with ample latitude to the Desk for variations around
that figure.

The present figure was not too far from that goal,

and he would have no quarrel with the result.
Mr. Bryan said he could not advocate a change in the discount
rate at this time.

He would like to associate himself with the view

that the reference in the policy directive to an absence of infla
tionary pressures should be modified.
Mr. Shuford said that in the Eighth District there had been
only minor pluses and minuses in the economic indicators.

In his

opinion, none of them was of such nature as to warrant special

In brief, economic conditions thus far in 1963 had,

generally speaking, just about approximated conditions in the latter
half of 1962.
Mr. Shuford recognized that there appeared to have been a
moderation recently in some of the monetary indicators, such as the
money supply and bank reserves.

At the same time, he regarded the

policy actions taken last year as having resulted in very stimulative
conditions during the latter part of the year.

Consequently, he was

pleased with the operations that had taken place over the past
eight weeks.

He would favor a continuation of the policy that

had been in existence during that time.


Mr. Shuford indicated that he would have no objection to any

of the changes that had been suggested in the policy directive.


sonally, however, he felt that the policy directive as it now stood
would be a satisfactory directive for the forthcoming three-week

He would agree, if technical changes were going to be

made in the directive, that the reference to an "absence of infla
tionary pressures" might be modified.
Mr. Balderston expressed agreement with those who would like
to modify the reference, in the first paragraph of the directive, to
an absence of inflationary pressures.

He would suggest that the

clause be eliminated or that there be substituted language such as
"the continued stability of the general level of commodity prices."
In this connection, he referred to the buying of common stocks at
price-earnings ratios that would have been looked upon as far out
of line a number of years ago.

If the stock market were to break

at some point in the future, he felt that the Committee might appear
to have been a little naive if it had repeatedly referred in the
directive to an absence of inflationary pressures.
Mr. Balderston suggested the possibility of shortening the
second paragraph of the directive so that it would call simply for
open market operations with a view to maintaining about the same
degree of firmness in the money market that had prevailed in
recent weeks.

Since the reference to offsetting downward pressures

on short-term interest rates had originally been included in a



context of offsetting seasonal pressures,.it would seem that this
language might perhaps be eliminated.

As to the reference to pro

viding for continued moderate reserve expansion, he suggested that
this part of the directive had not been followed recently.
comment was made without criticism of the Desk.


However, the use

of such language might lead a financial historian at some time in
the future to make the observation that, despite the directive,
total reserves and required reserves against demand deposits were
lower than at the beginning of the year.

There had been comments

at recent Committee meetings, he recalled, to the effect that
reserves had been rising at a rate in previous months that could
not continue.

It was the Committee consensus that an increase of

8 or 9 per cent, annual rate, was somethng that ought to be

The charts would show that there had been a correction

since the first of the year, but it had been a return to the longer
term trend.

This was not what the words of the directive seemed to

As to the forthcoming period, Mr. Balderston recommended no

change in prevailing policy.
Mr. Mitchell commented at this point that the first sentence

of the directive stated that it was the Committee's policy to accom
modate moderate growth in bank credit.
he noted, without reserve expansion.

This could hardly be done,
He suggested that Mr. Balderstor's



point might be met by changing the concluding words of the directive to
call for accommodating, rather than providing for, moderate reserve ex

Chairman Martin commented that business sentiment appeared to

be declining at the moment, as it always tended to do at this time of
the year.

It was surprising to him that business sentiment had stayed

as vigorous as it had for such a long period, particularly in view of
the severe winter weather.

In all,

it appeared that the January

February doldrums might have come a little later than usual this year.
The Chairman went on to say that he thought monetary policy,
over all, had been quite good during 1962.

He did not think one could

have expected monetary policy to do much more than it had.

The thing

that concerned him very much was the fact that the degree of ease that
had prevailed over the past two years had not been more successful in

stimulating business activity generally.

Also, it was his impression

that the quality of credit was detericrating seriously in some areas,

and this worried him a great deal.

He knew of nothing that would dis

credit monetary policy more than forced liquidation attributable to
the compounding of easy credit on easy credit.

In many places he

saw clear indications of overbuilding; he thought there could be no
question but that easy credit was being used to start office buildings,

luxury apartments, and similar projects.

lead to trouble.

It seemed to him that this

He hoped that businessmen would not get into

that type of thing on a large scale.



The Chairman went on to say that if the System had been derelict
in 1962 it was probably in paying a minimum of attention to the balance
of payments problem.

He did not pretend to know the answer to that

problem, and he was not sure that the System could take any effective
action in advance of a payments crisis.

However, although he was not

attempting to predict at the moment whether such a crisis would come
within the next three or six months, there was little question in his
mind but that a crisis was approaching in the Western world.

Such a

situation, if it came, would require all of the wisdom and collective
intelligence that could be brought to bear, but he feared that was
what the System was facing in 1963.

He might just be seeing ghosts,

of course, but one could not ignore the basic problems involved, and
he did not believe those problems showed signs of easing.

The world

situation involved such factors as the veto of British entry into
the Common Market, the Canadian political crisis, and instability in
Latin America.

In one sense the United States was an island of

strength, which placed great responsibility on U. S. authorities


maintain the strength of the principal reserve currency until a time

when the rest of the world became more stable.

The System should be

careful about overt moves in either direction, but he believed the
burden of proof was on those who maintained that the System had not
been doing enough to stimulate the domestic economy.


Chairman Martin added that one must never lose sight of the

fiasco of too much borrowed money and the forced liquidation that might
emanate from it.

One must bear in mind the speculative possibilities

involved whenever money was as freely available as it was today.


he was not proposing that the current availability of money be curtailed,
he was sure that many of the time deposits--not included in the money

supply as conventionally defined--were in effect purely demand deposits.
He had checked a number of sources that he considered reliable.
The foregoing were factors, then, that must be borne in mind,
the Chairman said.

In his opinion, the important thing for the System

in 1963 was to be stable and not be pushed unduly in either direction.
He was sympathetic to the objective of stimulation of the domestic
economy, but Mr. Hayes had stated well this morning a point that he
(Chairman Martin) had been expressing for some time;

that is, that

the greatest single shadow over the domestic economy at the present
time was the balance of payments problem.

This was the type of

question with which the Committee would have to concern itself over
the course of the year.
Turning to a summarization of today's meeting, Chairman Martin
said he understood there was no disagreement on policy for the next

three weeks.

It appeared to be unanimously agreed that there should

be no change in policy and that an even keel should be maintained.


Secretary's Note:

There had been distributed

to the Committee by the Secretary a background
statement of the current economic position. As

amended in the light of subsequent comments, the
statement read as follows:
The domestic economic situation continued to show little
change from other recent months. Inclement weather affected
business activity, as did strikes, in some important locali
ties. Industrial production, nonagricultural employment,
unemployment, and wholesale prices in January were at levels
little different from those in December, or in mid-1962.
Retail sales, seasonally adjusted, were estimated to be
fractionally lower in January than in December but consider
ably above last summer. Sales of new automobiles increased
to high levels, but department store sales declined. Auto
markets were particularly strong, with sales of domestic
cars at a 7 million annual rate. Construction expenditures
edged higher.
Manufacturing employment and the average length of
work week declined further. Average hourly earnings of

factory workers were unchanged in January and less than
2 per cent above a year earlier. Judging-from reports
issued so far, profits in manufacturing appear to have
risen appreciably in the fourth quarter. New and unfilled
orders for durable goods declined in December, extending
for another month a decline that began in October.
The seasonally adjusted money supply declined more in
the second half of January than it rose in the first half,
although it averaged somewhat higher than in December. On
the other hand, the rate of growth of time and savings de
posits accelerated. Seasonally adjusted bank credit rose
substantially further, but the rise was concentrated in
security holdings. Total reserves and required reserves
against private deposit expansion declined over the past
three weeks. Free reserves also declined, reflecting
mainly increased borrowings. The money market firmed
a little in the past two weeks as Treasury 90-day bills,
at around 2.95 per cent, were close to their 1962 highs.
Capital market financing for February was indicated
to be somewhat above the moderate volume in January owing
to a considerably larger volume of municipal financing.

The Government securities market regarded the February
Treasury refinancing as highly successful.



Stock market prices, which had risen further in January
on active trading, showed little additional rise in early


Yields on U. S. Government, municipal, and corpo

rate bonds generally rose during the past few weeks as

investor caution increased.
The over-all deficit in the U. S. balance of payments
was estimated for the month of January at about $400 million.
About half of this large net deficit was the result of a near
record volume of new foreign bond issues and placements--nearly
all Canadian issues.
U. S. exports rose sharply in December
from their rate in the preceding two months, while imports
declined from their advanced level in October and November.
Because of the 5-week dock strike, which ended January 25,
trade data for December and the next two or three months
will not provide a reliable basis for appraisal of trends.
Gold and foreign exchange markets were generally quiet,
but the pound sterling and the Canadian dollar weakened
abruptly in late January and early February as a result
of political developments.
With respect to the policy directive, Chairman Martin expressed
the view that the suggestions made by the staff seemed generally satis

He noted that certain other suggestions also had been made,

including suggestions by Mr. Mitchell and Mr. Balderston.
In the discussion that ensued, consideration was given first to
the reference in the directive to an absence of inflationary pressures.
It was suggested, after discussion of this point, that reference be made
instead to an absence of "general inflationary pressures," and agreement

was expressed.
Consideration was given next to the concluding clause in the
directive, which called for providing for continued moderate reserve


Mr. Balderston reviewed the points that had caused him to



raise a question about this clause, following which a suggestion was

made, and agreed upon, that the directive be changed to refer to oen

market operations with a view to "accommodating moderate reserve ex
Discussion then turned to the question of retaining in the
second paragraph of the directive a reference to open market operations
with a view to offsetting downward pressures on short-term interest

Mr. Hayes expressed the view that this language should be


Asked whether he anticipated a need for offsetting down

ward pressures within the next three weeks, Mr. Hayes commented that

within the context of the very modest change in policy in December,
the Desk would want to do something about downward pressures if it
saw them developing. Mr. Robertson noted that it had consistently
been his position that this created a tendency toward a "bill rate
only" policy.

He asked whether Mr, Hayes would not be satisfied

if the directive simply called for maintaining about the same degree
of firmness in money markets as in the past few weeks.

Mr. Hayes

replied that this might suggest a shift in policy that was not
intended at this time.

The statement with regard to offsetting

downward pressures on short-term rates was just as applicable for

the next three weeks as it had been for the past two weeks.


could be a surge in the demand for bills that would put bill rates
under considerable downward pressure, yet there might be no indica

tion of less firmness in general market conditions.

The retention



of the clause under discussion would give the Desk a degree of flexi
bility that he considered desirable.
Mr. Mitchell indicated that if, as he recalled, this language
was first inserted in the directive to take account of anticipated
downward seasonal pressures, it would seem to him appropriate to

eliminate the clause at this point.

Speaking along somewhat the

same lines, Mr. Swan commented that even though the Committee had
subsequently removed the word "seasonal" from the reference to down
ward pressures on short-term rates, the Committee had at first had
in mind seasonal pressures that presumably would be identifiable as

If the directive called for maintaining about the same degree

of firmness in the money market, this presumably would mean that the
Desk would take offsetting action in the event of either upward or
downward rate pressures.

If the reference was only to offsetting

downward pressures, this would seem to go beyond the Committee con
sensus, which called for continuation of the existing policy.
Mr. Hayes commented that at the time the language was


in the directive there was some recognition, he thought, of the

difference between general firmness in the money market and pressure
on bill rates.

He felt that it would be desirable to have this

language maintained in the directive as a guidepoint if downward

pressure on short-term rates should develop.

Mr. Deming indicated

that he would be inclined to retain the clause simply on the ground



that the Committee was not changing policy at this time.


the language might not be necessary at this stage.
Chairman Martin commented that he thought a case could be made
for retaining the clause on the grounds stated by Mr. Deming.

He felt

that the Committee should focus at each meeting on whether there was
to be a change of policy in either direction.

clear that the Committee did not intend to make

At this meeting it was

any change in policy.

In further discussion, additional points were raised that
suggested to those who presented them a preference for either retain
ing or omitting the clause under consideration.
Chairman Martin then commented that this discussion pointed
up a recurring problem with regard to the formulation of the directive.
As he had said on previous occasions, he doubted the efficacy of taking
votes on questions of phraseology.

Accordingly, he suggested that there

might be simply an indication of preference on the part of the Committee
members for or against the retention of the particular clause under


The members of the Committee then expressed themselves

on this question, and it developed that all but two of the Committee
members would prefer to retain the clause.
Chairman Martin noted that he had suggested the foregoing pro

cedure (an expression of preference) because of his feeling that
different words mean different things to different people.

In his

view, the taking of formal votes on matters of this kind was not



particularly satisfactory.

This did not mean, however, that if anyone

felt strongly enough his position should not be recorded.
Mr. Robertson indicated that he felt an important question was
involved in the retention or elimination of the clause relating to the

offsetting of downward pressures on short-term interest rates.


Committee, he thought, was tending to label itself as a "bill rate

only" group.

The problem, as he saw it, involved whether the

maintenance of the short-term rate should be regarded as a principal

function of open market operations.
went beyond merely a matter of words.

To him, therefore, the question
He would like to be recorded

as voting for the directive, but as not favoring the inclusion of the
clause in question.

He also indicated that he would like to furnish,

for inclusion in the record of this meeting, a statement of reasons
in support of his position.
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 Open
Market Account in accordance with the
following current economic policy

It is the Committee's current policy to accommodate
moderate growth in bank credit, while aiming at money mar
ket conditions that would minimize capital outflows inter
nationally. This policy takes into account the continuing

adverse United States balance of payments position and the



substantial increases in bank credit, money supply, and
the reserve base in recent months, but at the same time
recognizes the limited progress of the domestic economy,
the continuing underutilization of resources, and the

absence of general inflationary pressures.
To implement this policy, and in view of the forth
coming Treasury financing, System open market operations
during the next three weeks shall be conducted with a
view to maintaining about the same degree of firmness in
the money market that has prevailed in recent weeks and
to offsetting downward pressures on short-term interest
rates, while accommodating moderate reserve expansion.
Votes for this action:
Martin, Hayes, Balderston, Bryan,
Deming, Ellis, Fulton, Mitchell,
Robertson, and Shepardson. Votes
against this action:

Secretary's Note: Mr. Robertson sub
sequently transmitted to the Secretary
the following statement in amplification
of his oral comments at the meeting re
garding his position on the directive:
Although Mr. Robertson voted to approve this directive,
he expressed disapproval of the retention of the clause in
the last paragraph:
"and to offsetting downward pressures

on short-term interest rates."

He felt that the retention

of this clause, well beyond the period of strongest rate

pressures, suggested Committee preoccupation with the
maintenance of a particular level of bill rates rather than

with the promotion of a general monetary atmosphere appro
priate to the objectives of the Committee. Open market
operations to offset any downward pressures of market

forces on bill rates were not currently justified either
by international rate relationships or by domestic con
In his view, the need for stable monetary

conditions during the Treasury financing period over the
next three weeks was adequately covered by the injunction,
immediately preceding the clause in question, that the

Manager should conduct operations "with the view of main
taining about the same degree of firmness in the money
market that has prevailed in recent weeks."


It was agreed that the next meeting of the Federal Open Market

Committee would be held on Tuesday, March 5, 1963.
This concluded the discussion of matters before the Open Mar
ket Committee for consideration at this meeting.
At the invitation of the Chairman, Mr. Deming commented as a
matter of information on the grand jury indictment returned recently
against a number of Minnesota banks, a bank holding company, and a
clearing house association, charging certain practices in violation
of the antitrust statutes.
Mr. Mitchell then presented observations based on his atten
dance at the Conference on Inflation and Growth held in Brazil in

the early part of January.
The meeting then adjourned.