The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
FEDERAL RESERVE
press release
For immediate release
June 8, 1970
The Board of Governors of the Federal Reserve System
and the Federal Open Market Committee today released the attached
record of policy actions taken by the Federal Open Market Committee
at its meeting on March 10, 1970.
Such records are made available
approximately 90 days after the date of each meeting of the
Committee and will be found in the Federal Reserve Bulletin and
the Board's Annual Report.
Attachment
RECORD OF POLICY ACTIONS
OF THE FEDERAL OPEN MARKET COMMITTEE
Meeting held on March 10, 1970
1.
Authority to effect transactions in System Account.
The latest information lent support to the view that over-all
economic activity was weakening further in early 1970 after leveling
off in the fourth quarter of 1969.
As before, staff projections sug
gested that real GNP would decline somewhat in the first half of the
current year, but would then rise at a moderate rate in the second
half.
While prices and costs were continuing to increase at a rapid
pace, some slowing of their advance was still expected over the
course of the year.
In February, according to tentative estimates, industrial
production fell for the seventh consecutive month.
Employment
and hours of work in manufacturing declined substantially.
Total
nonfarm employment was about unchanged, and the over-all rate of
unemployment rose further from 3.9 to 4.2 per cent, its highest
level since October 1965.
Incomplete weekly data suggested that
retail sales, which had declined in January, might have fallen
further in February.
Private housing starts continued downward in
January, reaching their lowest level since April 1967, and new
orders received by manufacturers of durable goods dropped consider
ably after 3 months of moderate reductions.
3/10/70
Preliminary calculations indicated that wholesale prices of
both industrial commodities and farm products and foods had risen
further from mid-January to mid-February but that the increases were
less than in the previous month.
On a seasonally adjusted basis,
the consumer price index continued to rise about as fast in January
as in the two preceding months.
According to the latest Commerce-SEC survey, taken in February,
businesses planned to increase their spending on new plant and equip
ment by about 10.5 per cent in the full year 1970 but at a slower rate
in the first half.
However, it seemed unlikely that such spending
would accelerate in the second half, as implied by the surveyparticularly in view of recent declines in new orders for machinery
and equipment and a reported reduction in the fourth quarter of 1969
in manufacturers' appropriations for capital spending.
The staff projections still allowed for relatively rapid
increases in business fixed investment outlays in the first half and
a leveling off in such outlays later in the year.
The projections
also continued to suggest that the rate of inventory accumulation
would decline further in the first half and stabilize in the second;
that residential construction outlays would fall sharply further in
the first half and then turn up; and that defense spending would
decline throughout the year.
It was expected that consumer spending
would be stimulated somewhat in the second quarter by the increase
-3
3/10/70
in social security benefit payments, and in the third quarter by the
elimination of the remaining 5 per cent income tax surcharge at mid
year.
It appeared likely, however, that growth in consumer spending
would remain moderate in the year as a whole as a result of both
smaller gains in wage and salary income and an increase in the
saving rate.
U.S. imports rose more than exports in January, and the
surplus in U.S. merchandise trade narrowed.
According to tentative
estimates, the over-all balance of payments--which had been in sub
stantial deficit in January on both the liquidity and official
settlements bases--continued in deficit in February.
In foreign exchange markets, demand for sterling remained
strong during February.
Inflows of funds to the United Kingdom
became exceptionally large in early March, and on March 5 the Bank
of England reduced its discount rate to 7-1/2 per cent from the 8
per cent rate that had been in effect for about a year.
On March 6
the German monetary authorities announced that certain credit
tightening measures, including an increase in the discount rate of
the German Federal Bank from 6 to 7-1/2 per cent, were being taken
in light of domestic inflationary pressures and of the continued
expansion in bank credit.
The Italian lira had remained under
heavy selling pressure in recent weeks and--also on March 6--the
Bank of Italy announced that it was raising its discount rate from
4 to 5-1/2 per cent.
3/10/70
In markets for domestic securities both long- and short-term
interest rates had declined considerably on balance since the begin
ning of February, despite a very heavy calendar of new corporate
bond offerings and a continuing sizable volume of municipal and
Federal agency issues.
The rate declines reflected the increasing
signs that the economy was weakening and the growing belief among
investors that monetary restraint would shortly be--or had already
been--relaxed.
Treasury bill rates fell steadily during much of
February, but these rates tended to stabilize later in the month
when the Treasury followed its successful refunding operation by a
sale of $1.75 billion of additional tax-anticipation bills due in
April and by an increase in the size of its regular auctions of
6-month and 1-year bills.
On the day before this meeting the market
rate on 3-month bills, at about 6.85 per cent, was 45 basis points
below its level 4 weeks earlier and about 85 basis points below its
early February level.
The outflows of time and savings funds at banks and at nonbank
thrift institutions, which had been very large in January, apparently
came to an end in February--as a consequence of both the declines in
yields on competing market instruments and the advances in rates
offered by these institutions under the new higher ceilings that
became effective in late January.
Preliminary figures indicated that
there were relatively small net inflows of funds to savings and loan
associations and mutual savings banks in early February.
In January
3/10/70
-5
net acquisitions of mortgages by savings and loan associations were the
smallest for any month in nearly 3 years, and the volume of outstanding
commitments was at a 2-year low.
At commercial banks time and savings deposits expanded almost
as rapidly over the course of February as they had declined in January,
and their average level in February was only fractionally below that in
the previous month.
There were net increases during February in consumer
type deposits--particularly at country banks--and in the volume of large
denomination CD's outstanding.
It appeared that the volume of CD's held
by foreign official institutions had increased considerably.
In contrast to time deposits, the average levels of private demand
deposits and the money stock contracted sharply from January to Februaryat estimated annual rates of about 15 and 10 per cent, respectively.
The
bank credit proxy--daily-average member bank deposits--was estimated to
have declined from January to February at an annual rate of more than 9
per cent, and after adjustment for a net increase in funds raised from
nondeposit sources, at a rate of more than 6 per cent.
System open market operations since the February 10 meeting of
the Committee had been directed at fostering somewhat less firm condi
tions in the money market, in accordance with the Committee's decision
at that meeting and in light of the unfolding evidence of weakness in
both the money stock and the adjusted bank credit proxy.
The money
market remained firm for a time as the effects of large-scale reserve
supplying operations were offset by such factors as unexpectedly sharp
declines in float, but market conditions subsequently eased.
Thus, in
-6
3/10/70
the latter part of February and early March the average Federal funds
rate fell below 8.50 per cent from levels well above 9 per cent earlier
in February, and in the week ending March 5 member bank borrowings
averaged about $835 million, compared with average weekly levels of more
than $1 billion during February.
Staff projections suggested that money and bank credit would
grow at moderate rates over the months ahead if the somewhat less firm
conditions recently achieved in the money market were maintained.
Specifically, the projections suggested that the money stock would rise
on the average from February to March at an annual rate of 4 to 7 per
cent, resulting in growth during the first quarter as a whole at a rate
of about 2 per cent; and that money would continue to expand in the
second quarter, at a rate of about 3 per cent.
The adjusted bank credit
proxy was projected to increase from February to March at an annual rate
of 8 to 11 per cent--resulting in a first-quarter growth rate of 0.5 per
cent--and at a rate of about 5 per cent in the second quarter.
The
projections for the adjusted proxy series were influenced to an important
degree by the expectation that time and savings deposits would continue
to expand rapidly, but that this would be partly offset by slower expan
sion and then some decline in bank use of nondeposit funds.
The Committee agreed
that growth of money and bank credit
during coming months at about the rates projected would be appropriate
in the current economic environment.
Concern was expressed in the dis
cussion about the risks of unduly large changes in money market condi
tions.
Concern also was expressed about both the danger of excessive
3/10/70
growth in the aggregates and the risk of shortfalls from desirable
growth rates, which some members thought were particularly likely for
the money stock in a period of economic weakness such as the present.
In view of the importance attached to avoiding such extremes, the
Committee decided to convey in its directive the objective of
achieving growth in money and bank credit over the months ahead at
about the moderate rates indicated, and to call for maintenance of
money market conditions consistent with that objective.
The following current economic policy directive was issued to
the Federal Reserve Bank of New York:
The information reviewed at this meeting suggests that
real economic activity, which leveled off in the fourth quarter
of 1969, is weakening further in early 1970. Prices and costs,
however, are continuing to rise at a rapid pace. Market interest
rates have declined considerably in recent weeks, partly as a
result of changing investor attitudes regarding the outlook for
economic activity and monetary policy. Both bank credit and the
money supply declined on average in February, but both were
tending upward in the latter part of the month. Outflows of
time and savings funds at banks and nonbank thrift institutions,
which had been sizable in January, apparently ceased in February,
reflecting advances in rates offered on such funds following the
recent increases in regulatory ceilings, together with declines
in short-term market interest rates. The U.S. foreign trade
surplus narrowed in January and the over-all balance of payments
deficit has remained large in recent weeks. In light of the
foregoing developments, it is the policy of the Federal Open
Market Committee to foster financial conditions conducive to
orderly reduction in the rate of inflation, while encouraging
the resumption of sustainable economic growth and the attainment
of reasonable equilibrium in the country's balance of payments.
To implement this policy, the Committee desires to see
moderate growth in money and bank credit over the months ahead.
System open market operations until the next meeting of the
Committee shall be conducted with a view to maintaining money
market conditions consistent with that objective.
3/10/70
Votes for this action:
Messrs.
Burns, Hayes, Brimmer, Daane, Heflin,
Hickman, Maisel, Mitchell, Robertson,
Sherrill, Swan, and Kimbrel. Votes
against this action: None.
Absent and not voting: Mr. Francis.
(Mr. Kimbrel voted as his alternate.)
2. Amendment to continuing authority directive.
At its meeting on October 7, 1969, the Committee had modified
paragraph 2 of the continuing authority directive regarding domestic
open market operations by adding language authorizing Reserve Banks other
than the New York Bank to purchase special short-term certificates of
indebtedness from the Treasury for their own account at times when
the New York Bank was closed.
At this meeting the Committee amended
the language adopted at that time for purposes of clarification.
After this amendment, paragraph 2 read as follows:
The Federal Open Market Committee authorizes and
directs the Federal Reserve Bank of New York, or, if the
New York Reserve Bank is closed, any other Federal Reserve
Bank, to purchase directly from the Treasury for its own
account (with discretion, in cases where it seems desir
able, to issue participations to one or more Federal
Reserve Banks) such amounts of special short-term certif
icates of indebtedness as may be necessary from time to
time for the temporary accommodation of the Treasury;
provided that the rate charged on such certificates shall
be a rate 1/4 of 1 per cent below the discount rate of
the Federal Reserve Bank of New York at the time of such
purchases and provided further that the total amount of such
certificates held at any one time by the Federal Reserve Banks
shall not exceed $1 billion.
Votes for this action: Messrs.
Burns, Hayes, Brimmer, Daane, Heflin,
Hickman, Maisel, Mitchell, Robertson,
Sherrill, Swan, and Kimbrel. Votes
against this action: None.
Absent and not voting: Mr. Francis.
(Mr. Kimbrel voted as his alternate.)
3/10/70
Another amendment to the continuing authority directive that
had been made on October 7, 1969, involved the addition of a paragraph 3
authorizing the Reserve Banks to engage in lending of U.S. Government
securities held in the System Open Market Account, under such
instructions as the Committee might specify from time to time.
That
action had been taken on the basis of a judgment by the Committee that
in the existing circumstances such lending of securities was reason
ably necessary to the effective conduct of open market operations and
to the effectuation of open market policies, and on the understanding
that the authorization would be reviewed periodically.
At this meeting
the Committee concurred in the judgment of the Manager of the System
Open Market Account that the lending activity in question remained
necessary and, accordingly, that the authorization should remain in
effect subject to periodic review.
The Committee also approved certain modifications that had
been recommended by the Manager, in light of the operating experience
to date, in the instructions it had issued in conjunction with this
authorization.
Among the more important of these were an increase
from $75 million to $150 million in the dollar limit on the par
value
of securities involved in outstanding loans to any individual
dealer at any time; a lengthening from three to five business days
of the limit on the duration of loans to dealers, with loans remaining
-10
3/10/70
subject to renewal; and certain revisions in the rates to be charged
on contracts
3.
renewed beyond their initial maturity.
Amendment to authorization for System foreign currency operations.
The Committee approved an increase from $1,000 million to
$1,250 million equivalent in the System swap arrangement with the
Bank of Italy, and the corresponding amendment to paragraph 2 of the
authorization for System foreign currency operations, subject to the
understanding that the action would become effective upon a deter
mination by Chairman Burns that it was in the national interest.
Chairman Burns made the indicated determination later on the day of
this meeting.
As a result of this action, paragraph 2 read as follows:
The Federal Open Market Committee directs the Federal
Reserve Bank of New York to maintain reciprocal currency
arrangements ("swap" arrangements) for System Open Market
Account for periods up to a maximum of 12 months with the
following foreign banks, which are among those designated
by the Board of Governors of the Federal Reserve System
under Section 214.5 of Regulation N, Relations with Foreign
Banks and Bankers, and with the approval of the Committee
to renew such arrangements on maturity:
Foreign bank
Austrian National Bank
National Bank of Belgium
Bank of Canada
National Bank of Denmark
Bank of England
Bank of France
German Federal Bank
Bank of Italy
Bank of Japan
Bank of Mexico
Netherlands Bank
Amount of
arrangement
(millions of
dollars equivalent)
200
500
1,000
200
2,000
1,000
1,000
1,250
1,000
130
300
3/10/70
-11-
Foreign bank
Amount of
arrangement
(millions of
dollars equivalent)
Bank of Norway
Bank of Sweden
Swiss National Bank
Bank for International Settlements:
Dollars against Swiss francs
Dollars against authorized European
currencies other than Swiss francs
200
250
600
600
1,000
Votes for this action: Messrs.
Burns, Hayes, Brimmer, Daane, Heflin,
Hickman, Maisel, Mitchell, Robertson,
Sherrill, Swan, and Kimbrel. Votes
against this action: None.
Absent and not voting: Mr. Francis.
(Mr. Kimbrel voted as his alternate.)
This action was taken on recommendation of the Special
Manager, who advised that it should prove helpful in providing against
destabilizing short-run pressures on the lira.
It was understood that
the U.S. Treasury would concurrently make available a $250 million
swap facility to the Bank of Italy.
4.
Review of continuing authorizations.
This being the first meeting of the Federal Open Market
Committee following the election of new members from the Federal
Reserve Banks to serve for the year beginning March 1, 1970, and
their assumption of duties, the Committee followed its customary
practice of reviewing all of its continuing authorizations and
directives.
The actions taken with respect to the continuing
authority directive for domestic open market operations and the
3/10/70
-12
authorization for System foreign currency operations have been
described in the preceding portions of the record for this date.
Except for the changes resulting from those actions, the Committee
reaffirmed the two instruments, and also the foreign currency
directive, in the form in which they were outstanding at the begin
ning of the year 1970.
Votes for these actions:
Messrs.
Burns, Hayes, Brimmer, Daane, Heflin,
Hickman, Maisel, Mitchell, Robertson,
Sherrill, Swan, and Kimbrel. Votes
against these actions:
None.
Absent and not voting:
Mr. Francis.
(Mr. Kimbrel voted as his alternate.)
@FedFRASER