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Meeting of Federal Open Market Committee July 27, 1971 MINUTES OF ACTIONS A meeting of the Federal Open Market Committee was held in the offices of the Board of Governors of the Federal Reserve System in Washington, D.C., on Tuesday, July 27, 1971, at 9:30 a.m. PRESENT: Mr. Burns, Chairman Mr. Hayes, Vice Chairman Mr. Brimmer Mr. Clay Mr. Daane Mr. Kimbrel Mr. Maisel Mr. Mayo Mr. Mitchell Mr. Morris Mr. Robertson Mr. Sherrill Messrs. Coldwell, Eastburn, and Swan, Alternate Members of the Federal Open Market Committee Messrs. Heflin, Francis, and MacLaury, Presidents of the Federal Reserve Banks of Richmond, St. Louis, and Minneapolis, respectively Mr. Broida, Deputy Secretary Mr. Bernard, Assistant Secretary Mr. Hackley, General Counsel Mr. Partee, Economist Messrs. Axilrod, Garvy, Scheld, Solomon, Taylor, and Tow, Associate Economists Mr. Holmes, Manager, System Open Market Account Mr. Kenyon, Deputy Secretary, Office of the Secretary, Board of Governors Messrs. Altmann and Leonard, Assistant Secretaries, Office of the Secretary, Board of Governors 7/27/71 Mr. Cardon, Assistant to the Board of Governors Messrs. Coyne and O'Brien, Special Assistants to the Board of Governors Mr. Chase, Associate Director, Division of Research and Statistics, Board of Governors Messrs. Wernick and Williams, Advisers, Division of Research and Statistics, Board of Governors Mr. Keir, Associate Adviser, Division of Research and Statistics, Board of Governors Mr. Gemmill, Associate Adviser, Division of International Finance, Board of Governors Mr. Wendel, Chief, Government Finance Section, Division of Research and Statistics, Board of Governors Miss Eaton, Open Market Secretariat Assistant, Office of the Secretary, Board of Governors Miss Orr, Secretary, Office of the Secretary, Board of Governors Mr. MacDonald, First Vice President, Federal Reserve Bank of Cleveland Messrs. Parthemos and Craven, Senior Vice Presidents, Federal Reserve Banks of Richmond and San Francisco, respectively Messrs. Bodner, Willes, Hocter, Andersen, and Green, Vice Presidents, Federal Reserve Banks of New York, Philadelphia, Cleveland, St. Louis, and Dallas, respectively Mr. Kareken, Economic Adviser, Federal Reserve Bank of Minneapolis Messrs. Fieleke and Geng, Assistant Vice Presidents, Federal Reserve Banks of Boston and New York, respectively By unanimous vote, the minutes of actions taken at the meet ings of the Federal Open Market Committee on June 8 and June 29, 1971, were approved. 7/27/71 The memoranda of discussion for the meetings of the Federal Open Market Committee held on June 8 and June 29, 1971, were accepted. By unanimous vote, the System open market transactions in foreign currencies during the period June 29 through July 26, 1971, were approved, ratified, and confirmed. By unanimous vote, renewal of the four System drawings on the National Bank of Belgium maturing in the period August 10-26, 1971, was authorized. By unanimous vote, the open market transactions in Govern ment securities, agency obligations, and bankers' acceptances during the period June 29 through July 26, 1971, were approved, ratified, and confirmed. By unanimous vote, the Federal Reserve Bank of New York was authorized and directed, until otherwise directed by the Com mittee, to execute transactions in the System Account in accordance with the following current economic policy directive: The information reviewed at this meeting suggests that moderate expansion in real output of goods and services is continuing and that unemployment remains substantial. Wage rates in most sectors are continuing to rise at a rapid pace. The rate of advance in both consumer prices and wholesale prices of industrial commodities has stepped up again recently after moder ating earlier in the year. In the second quarter inflows of consumer-type time and savings funds at banks and nonbank thrift institutions were large, but below the unusually rapid first-quarter pace. Growth 7/27/71 in bank credit and the broadly defined money stock slowed in the second quarter, but the rate of expansion in the narrowly defined money stock increased. In July, according to partial data, it appears that both bank credit and the narrowly defined money stock are growing at rates close to those of the second quarter, but that expansion in broadly defined money is slowing. While interest rates on most types of long-term market securi ties have changed relatively little on balance in recent weeks, short-term interest rates have risen further. In mid-July Federal Reserve discount rates were increased by one-quarter of a percentage point to 5 per cent. The deficit in the U.S. balance of payments remained extraor dinarily large in the second quarter, mainly reflecting capital outflows related to expectations of shifts in foreign exchange rates and the development of a substan tial deficit in the merchandise trade balance. In light of the foregoing developments, it is the policy of the Federal Open Market Committee to foster financial condi tions conducive to sustainable economic growth, while encouraging an orderly reduction in the rate of inflation, moderation of short-term capital outflows, and attainment of reasonable equilibrium in the country's balance of payments. To implement this policy, taking account of the current Treasury financing and of developments in capital markets, the Committee seeks to achieve more moderate growth in monetary aggregates over the months ahead. System open market operations until the next meeting of the Committee shall be conducted with a view to achieving bank reserve and money market conditions consistent with those objectives. It was agreed that the next meeting of the Federal Open Market Committee would be held on Tuesday, August 24, 1971, at 9:30 a.m. The meeting adjourned. Deputy Secretary
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