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Meeting of Federal Open Market Committee
March 5, 1968
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, March 5, 1968, at 9:30 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Martin, Chairman
Hayes, Vice Chairman
Br immer
Ellis
Galusha
Hickman
Kimbrel
Maisel
Mitchell
Robertson
Sherrill
Messrs. Bopp, Clay, Coldwell, and Scanlon,
Alternate Members of the Federal Open
Market Committee
Messrs. Wayne, Francis, and Swan, Presidents
of the Federal Reserve Banks of Richmond,
St. Louis, and San Francisco, respectively
Mr. Holland, Secretary
Mr. Sherman, Assistant Secretary
Mr. Kenyon, Assistant Secretary
Mr. Broida, Assistant Secretary
Mr. Molony, Assistant Secretary
Mr. Hackley, General Counsel
Mr. Brill, Economist
Messrs. Axilrod, Hersey, Kareken, Link,
Mann, Partee, Reynolds, Solomon, and
Taylor, Associate Economists
Mr. Holmes, Manager, System Open Market
Account
Mr. Coombs, Special Manager, System Open
Market Account
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Messrs. Cardon and Fauver, Assistants to the
Board of Governors
Mr. Williams, Adviser, Division of Research
and Statistics, Board of Governors
Mr. Wernick, Associate Adviser, Division
of Research and Statistics, Board of
Governors
Mr. Keir, Assistant Adviser, Division of
Research and Statistics, Board of
Governors
Mr. Bernard, Special Assistant, Office of the
Secretary, Board of Governors
Miss Eaton, General Assistant, Office of the
Secretary, Board of Governors
Miss McWhirter, Analyst, Office of the
Secretary, Board of Governors
Mr. Heflin, First Vice President of the
Federal Reserve Bank of Richmond
Messrs. Eastburn, Baughman, Andersen, Tow,
Green, and Craven, Vice Presidents of
the Federal Reserve Banks of Philadelphia,
Chicago, St. Louis, Kansas City, Dallas,
and San Francisco, respectively
Mr. Haymes, Assistant Vice President, Federal
Reserve Bank of Richmond
Mr. Cooper, Manager, Securities and Acceptance
Departments, Federal Reserve Bank of New
York
Mr. Anderson, Financial Economist, Federal
Reserve Bank of Boston
The Secretary reported that advices had been received of
the election by the Federal Reserve Banks of members and alternate
members of the Federal Open Market Committee for the term of one
year beginning March 1, 1968, that it appeared that such persons
were legally qualified to serve, and that they had executed their
oaths of office.
The elected members and alternates were as follows:
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3/5/68
George H. Ellis, President of the Federal Reserve Bank
of Boston, with Karl R. Bopp, President of the Federal
Reserve Bank of Philadelphia, as alternate;
Alfred Hayes, President of the Federal Reserve Bank
of New York, with William F. Treiber, First Vice
President of the Federal Reserve Bank of New York,
as alternate;
W. Braddock Hickman, President of the Federal Reserve
Bank of Cleveland, with Charles J. Scanlon, President
of the Federal Reserve Bank of Chicago, as alternate;
Monroe Kimbrel, President of the Federal Reserve Bank
of Atlanta, with Philip E. Coldwell, President of the
Federal Reserve Bank of Dallas, as alternate;
Hugh D. Galusha, Jr., President of the Federal Reserve
Bank of Minneapolis, with George H. Clay, President
of the Federal Reserve Bank of Kansas City, as
alternate.
By unanimous vote, the following officers of the Federal
Open Market Committee were elected to serve until the election of
their successors at the first meeting of the Committee after
February 28, 1969, with the understanding that in the event of the
discontinuance of their official connection with the Board of
Governors or with a Federal Reserve Bank, as the case might be,
they would cease to have any official connection with the Federal
Open Market Committee:
Wm. McC. Martin, Jr.
Alfred Hayes
Robert C. Holland
Merritt Sherman
Kenneth A. Kenyon
Arthur L. Broida
Charles Molony
Chairman
Vice Chairman
Secretary
Assistant Secretary
Assistant Secretary
Assistant Secretary
Assistant Secretary
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Howard H. Hackley
David B. Hexter
Daniel H. Brill
Stephen H. Axilrod, A. B.
Hersey, John H. Kareken,
Albert R. Koch, Robert G.
Link, Maurice Mann,
J. Charles Partee, John E.
Reynolds, Robert Solomon,
Charles T. Taylor, and
Parker B. Willis
General Counsel
Assistant General Counsel
Economist
Associate Economists
By unanimous vote, the Federal Reserve Bank of New York
was selected to execute transactions for the System Open Market
Account until the adjournment of the first meeting of the Federal
Open Market Committee after February 28, 1969.
By unanimous vote, Alan R. Holmes and Charles A. Coombs
were selected to serve at the pleasure of the Federal Open Market
Committee as Manager of the System Open Market Account and as
Special Manager for foreign currency operations for such Account,
respectively, it being understood that their selection was subject
to their being satisfactory to the Board of Directors of the
Federal Reserve Bank of New York.
Secretary's Note: Advice subsequently
was received that Messrs. Holmes and
Coombs were satisfactory to the Board
of Directors of the Federal Reserve
Bank of New York for service in the
respective capacities indicated.
By unanimous vote, the minutes of actions taken at the
meeting of the Federal Open Market Committee held on February 6,
1968, were approved.
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The memorandum of discussion for the meeting of the Federal
Open Market Committee held on February 6, 1968, was accepted.
Consideration was then given to the continuing authoriza
tions of the Committee, according to the customary practice of
reviewing such matters at the first meeting in March of every year,
and the actions set forth hereinafter were taken.
By unanimous vote, the following procedures with respect
to allocations of securities in the System Open Market Account
were approved without change:
1. Securities in the System Open Market Account
shall be reallocated on the last business day of each
month by means of adjustments proportionate to the
adjustments that would have been required to equalize
approximately the average reserve ratios of the 12
Federal Reserve Banks based on the most recent available
five business days' reserve ratio figures.
2. The Board's staff shall calculate, in the
morning of each business day, the reserve ratios of
each Bank after allowing for the indicated effects of
the settlement of the Interdistrict Settlement Fund
for the preceding day. If these calculations should
disclose a deficiency in the reserve ratio of any Bank,
the Board's staff shall inform the Manager of the System
Open Market Account, who shall make a special adjustment
as of the previous day to restore the reserve ratio of
that Bank to the average of all the Banks. However,
such adjustments shall not be made beyond the point
where a deficiency would be created at any other Bank.
Such adjustments shall be offset against the participa
tion of the Bank or Banks best able to absorb the
additional amount or, at the discretion of the Manager,
against the participation of the Federal Reserve Bank
of New York. The Board's staff and the Bank or Banks
concerned shall then be notified of the amounts involved
and the Interdistrict Settlement Fund shall be closed
after giving effect to the adjustments as of the
preceding business day.
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3. Until the next reallocation the Account shall
be apportioned on the basis of the ratios determined
in paragraph 1, after allowing for any adjustments as
provided for in paragraph 2.
4. Profits and losses on the sale of securities
from the Account shall be allocated on the day of
delivery of the securities sold on the basis of each
Bank's current holdings at the opening of business on
that day.
By unanimous vote, the following list for distribution of
periodic reports prepared by the Federal Reserve Bank of New York
for the Federal Open Market Committee was approved:
1.
*2.
*3.
*4.
*5.
6.
7.
8.
9.
Members and Alternate Members of the Committee,
other Reserve Bank Presidents, and officers
of the Committee.
The Secretary of the Treasury.
The Under Secretary of the Treasury for Monetary
Affairs and the Deputy Under Secretary for
Monetary Affairs.
The Assistant to the Secretary of the Treasury
working on debt management problems.
The Fiscal Assistant Secretary of the Treasury.
The Director of the Division of Bank Operations
of the Board of Governors.
The officer in charge of research at each of the
Federal Reserve Banks not represented by its
President on the Committee.
The officers of the Federal Reserve Bank of New
York working under the Manager and Special
Manager of the System Open Market Account.
With the approval of a member of the Committee
or any other President of a Federal Reserve
Bank, with notice to the Secretary, any other
employee of the Board of Governors or of a
Federal Reserve Bank.
By unanimous vote, the Committee reaffirmed the authoriza
tion, first given on March 1, 1951, for the Chairman to appoint a
*
Weekly reports only.
3/5/68
Federal Reserve Bank to operate the System Open Market Account
temporarily in case the Federal Reserve Bank of New York is unable
to function.
By unanimous vote, the following resolution to provide
for the continued operation of the Federal Open Market Committee
during an emergency was reaffirmed:
In the event of war or defense emergency, if the
Secretary or Assistant Secretary of the Federal Open
Market Committee (or in the event of the unavailability
of both of them, the Secretary or Acting Secretary of
the Board of Governors of the Federal Reserve System)
certifies that as a result of the emergency the available
number of regular members and regular alternates of the
Federal Open Market Committee is less than seven, all
powers and functions of the said Committee shall be
performed and exercised by, and authority to exercise
such powers and functions is hereby delegated to, an
Interim Committee, subject to the following terms and
conditions:
Such Interim Committee shall consist of seven
members, comprising each regular member and regular
alternate of the Federal Open Market Committee then
available, together with an additional number,
sufficient to make a total of seven, which shall be
made up in the following order of priority from those
available:
(1) each alternate at large (as defined
below); (2) each President of a Federal Reserve Bank
not then either a regular member or an alternate; (3)
each First Vice President of a Federal Reserve Bank;
provided that (a) within each of the groups referred
to in clauses (1), (2), and (3) priority of selection
shall be in numerical order according to the numbers
of the Federal Reserve Districts, (b) the President
and the First Vice President of the same Federal Reserve
Bank shall not serve at the same time as members of the
Interim Committee, and (c) whenever a regular member or
regular alternate of the Federal Open Market Committee
or a person having a higher priority as indicated in
clauses (1), (2), and (3) becomes available he shall
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become a member of the Interim Committee in the place
of the person then on the Interim Committee having the
lowest priority. The Interim Committee is hereby
authorized to take action by majority vote of those
present whenever one or more members thereof are
present, provided that an affirmative vote for the
action taken is cast by at least one regular member,
regular alternate, or President of a Federal Reserve
Bank. The delegation of authority and other procedures
set forth above shall be effective only during such
period or periods as there are available less than a
total of seven regular members and regular alternates
of the Federal Open Market Committee.
As used herein the term "regular member" refers
to a member of the Federal Open Market Committee duly
appointed or elected in accordance with existing law;
the term "regular alternate" refers to an alternate of
the Committee duly elected in accordance with existing
law and serving in the absence of the regular member
for whom he was elected; and the term "alternate at
large" refers to any other duly elected alternate of
the Committee at a time when the member in whose
absence he was elected to serve is available.
By unanimous vote, the following resolution authorizing
certain actions by the Federal Reserve Banks during an emergency
was reaffirmed:
The Federal Open Market Committee hereby authorizes
each Federal Reserve Bank to take any or all of the
actions set forth below during war or defense emergency
when such Federal Reserve Bank finds itself unable after
reasonable efforts to be in communication with the
Federal Open Market Committee (or with the Interim
Committee acting in lieu of the Federal Open Market
Committee) or when the Federal Open Market Committee (or
such Interim Committee) is unable to function.
(1) Whenever it deems it necessary in the light of
economic conditions and the general credit situation then
prevailing (after taking into account the possibility of
providing necessary credit through advances secured by
direct obligations of the United States under the last
paragraph of section 13 of the Federal Reserve Act),
such Federal Reserve Bank may purchase and sell obligations
3/5/68
of the United States for its own account, either outright
or under repurchase agreement, from and to banks, dealers,
or other holders of such obligations.
(2) In case any prospective seller of obligations of
the United States to a Federal Reserve Bank is unable to
tender the actual securities representing such obligations
because of conditions resulting from the emergency, such
Federal Reserve Bank may, in its discretion and subject
to such safeguards as it deems necessary, accept from
such seller, in lieu of the actual securities, a "due
bill" executed by the seller in form acceptable to such
Federal Reserve Bank stating in substantial effect that
the seller is the owner of the obligations which are the
subject of the purchase, that ownership of such obliga
tions is thereby transferred to the Federal Reserve Bank,
and that the obligations themselves will be delivered to
the Federal Reserve Bank as soon as possible.
(3) Such Federal Reserve Bank may in its discretion
purchase special certificates of indebtedness directly
from the United States in such amounts as may be needed
to cover overdrafts in the general account of the
Treasurer of the United States on the books of such Bank
or for the temporary accommodation of the Treasury, but
such Bank shall take all steps practicable at the time
to insure as far as possible that the amount of
obligations acquired directly from the United States and
held by it, together with the amount of such obligations
so acquired and held by all other Federal Reserve Banks,
does not exceed $5 billion at any one time.
Authority to take the actions set forth shall be
effective only until such time as the Federal Reserve
Bank is able again to establish communications with the
Federal Open Market Committee (or the Interim Committee),
and such Committee is then functioning.
By unanimous vote, the Committee reaffirmed the authoriza
tion, first given at the meeting on December 16, 1958, providing
for System personnel assigned to the Office of Emergency Planning,
Special Facilities Division, on a rotating basis to have access to
the resolutions (1) providing for continued operation of the
Committee during an emergency and (2) authorizing certain actions
by the Federal Reserve Banks during an emergency.
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3/5/68
There was unanimous agreement that no action should be
taken to change the existing procedure, as called for by resolution
adopted June 21, 1939, requesting the Board of Governors to cause
its examining force to furnish the Secretary of the Federal Open
Market Committee a report of each examination of the System Open
Market Account.
Reference was made to the procedure authorized at the
meeting of the Committee on March 2, 1955, and most recently
reaffirmed on March 7, 1967, whereby, in addition to members and
officers of the Committee and Reserve Bank Presidents not currently
members of the Committee, minutes and other records could be made
available to any other employee of the Board of Governors or of a
Federal Reserve Bank with the approval of a member of the Committee
or another Reserve Bank President, with notice to the Secretary.
It was agreed unanimously that no action should be taken at
this time to amend the procedure authorized on March 2, 1955.
By unanimous vote, 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 continuing authority
directive relating to transactions in U.S. Government securities,
agency obligations, and bankers' acceptances:
1. The Federal Open Market Committee authorizes
and directs the Federal Reserve Bank of New York, to the
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extent necessary to carry out the most recent current
economic policy directive adopted at a meeting of the
Committee:
(a) To buy or sell U.S. Government securi
ties in the open market, from or to Government
securities dealers and foreign and international
accounts maintained at the Federal Reserve Bank
of New York, on a cash, regular, or deferred
delivery basis, for the System Open Market
Account at market prices and, for such Account,
to exchange maturing U.S. Government securities
with the Treasury or allow them to mature without
replacement; provided that the aggregate amount
of such securities held in such Account at the
close of business on the day of a meeting of the
Committee at which action is taken with respect
to a current economic policy directive shall not
be increased or decreased by more than $2.0
billion during the period commencing with the
opening of business on the day following such
meeting and ending with the close of business
on the day of the next such meeting;
(b) To buy or sell prime bankers' acceptances
of the kinds designated in the Regulation of the
Federal Open Market Committee in the open market,
from or to acceptance dealers and foreign accounts
maintained at the Federal Reserve Bank of New York,
on a cash, regular, or deferred delivery basis, for
the account of the Federal Reserve Bank of New York
at market discount rates; provided that the
aggregate amount of bankers' acceptances held at
any one time shall not exceed (1) $125 million or
(2) 10 per cent of the total of bankers' acceptances
outstanding as shown in the most recent acceptance
survey conducted by the Federal Reserve Bank of New
York, whichever is the lower;
(c) To buy U.S. Government securities, obliga
tions that are direct obligations of, or fully
guaranteed as to principal and interest by, any
agency of the United States, and prime bankers'
acceptances with maturities of 6 months or less at
the time of purchase, from nonbank dealers for the
account of the Federal Reserve Bank of New York
under agreements for repurchase of such securities,
obligations, or acceptances in 15 calendar days or
less, at rates not less than (1) the discount rate
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of the Federal Reserve Bank of New York at the
time such agreement is entered into, or (2) the
average issuing rate on the most recent issue
of 3-month Treasury bills, whichever is the
lower; provided that in the event Government
securities or agency issues covered by any such
agreement are not repurchased by the dealer
pursuant to the agreement or a renewal thereof,
they shall be sold in the market or transferred
to the System Open Market Account; and provided
further that in the event bankers' acceptances
covered by any such agreement are not repurchased
by the seller, they shall continue to be held
by the Federal Reserve Bank or shall be sold in
the open market.
2. The Federal Open Market Committee authorizes and
directs the Federal Reserve Bank of New York to purchase
directly from the Treasury for the account of the Federal
Reserve Bank of New York (with discretion, in cases where
it seems desirable, to issue participations to one or more
Federal Reserve Banks) such amounts of special short-term
certificates 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.
By unanimous vote, the authorization for System foreign
currency operations was amended to read as follows:
AUTHORIZATION FOR SYSTEM FOREIGN CURRENCY OPERATIONS
1. The Federal Open Market Committee authorizes and
directs the Federal Reserve Bank of New York, for System
Open Market Account, to the extent necessary to carry out
the Committee's foreign currency directive:
A. To purchase and sell the following foreign
currencies in the form of cable transfers through spot or
forward transactions on the open market at home and abroad,
including transactions with the U.S. Stabilization Fund
established by Section 10 of the Gold Reserve Act of 1934,
3/5/68
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with foreign monetary authorities, and with the Bank for
International Settlements:
Austrian schillings
Belgian francs
Canadian dollars
Danish kroner
Pounds sterling
French francs
German marks
Italian lire
Japanese yen
Mexican pesos
Netherlands guilders
Norwegian kroner
Swedish kronor
Swiss francs
B. To hold foreign currencies listed in para
graph A above, up to the following limits:
(1) Currencies held spot or purchased
forward, up to the amounts necessary to fulfill
outstanding forward commitments;
(2) Additional currencies held spot or
purchased forward, up to the amount necessary
for System operations to exert a market influence
but not exceeding $150 million equivalent; and
(3) Sterling purchased on a covered or
guaranteed basis in terms of the dollar, under
agreement with the Bank of England, up to $200
million equivalent.
C. To have outstanding forward commitments under
taken under paragraph A above to deliver foreign currencies,
up to the following limits:
(1) Commitments to deliver foreign
currencies to the Stabilization Fund, up to $350
million equivalent;
(2) Commitments to deliver Italian lire,
under special arrangements with the Bank of Italy,
up to $500 million equivalent; and
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3/5/68
(3) Other forward comitments to deliver
foreign currencies, up to $550 million equivalent.
D. To draw foreign currencies and to permit
foreign banks to draw dollars under the reciprocal
currency arrangements listed in paragraph 2 below,
provided that drawings by either party to any such
arrangement shall be fully liquidated within 12 months
after any amount outstanding at that time was first
drawn, unless the Committee, because of exceptional
circumstances, specifically authorizes a delay.
2. 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
Bank of Norway
Bank of Sweden
Swiss National Bank
Bank for International Settlements:
System drawings in Swiss francs
System drawings in authorized
European currencies other than
Swiss francs
Amount of
Arrangement
(millions of
dollars equivalent)
100
225
750
100
1,500
100
750
750
750
130
225
100
200
400
400
600
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3. Unless otherwise expressly authorized by
the Committee, all transactions in foreign currencies
undertaken under paragraph 1(A) above shall be at
prevailing market rates and no attempt shall be made
to establish rates that appear to be out of line with
underlying market forces.
4. It shall be the practice to arrange with
foreign central banks for the coordination of foreign
currency transactions. In making operating arrangements
with foreign central banks on System holdings of
foreign currencies, the Federal Reserve Bank of New York
shall not commit itself to maintain any specific balance,
unless authorized by the Federal Open Market Committee.
Any agreements or understandings concerning the adminis
tration of the accounts maintained by the Federal Reserve
Bank of New York with the foreign banks designated by the
Board of Governors under Section 214.5 of Regulation N
shall be referred for review and approval to the
Committee.
5. Foreign currency holdings shall be invested
insofar as practicable, considering needs for minimum
working balances. Such investments shall be in accordance
with Section 14(e) of the Federal Reserve Act.
6. A Subcommittee consisting of the Chairman and the
Vice Chairman of the Committee and the Vice Chairman of the
Board of Governors (or in the absence of the Chairman or of
the Vice Chairman of the Board of Governors the members of
the Board designated by the Chairman as alternates, and in
the absence of the Vice Chairman of the Committee his
alternate) is authorized to act on behalf of the Committee
when it is necessary to enable the Federal Reserve Bank of
New York to engage in foreign currency operations before
the Committee can be consulted. All actions taken by the
Subcommittee under this paragraph shall be reported
promptly to the Committee.
7. The Chairman (and in his absence the Vice Chairman
of the Committee, and in the absence of both, the Vice
Chairman of the Board of Governors) is authorized:
A. With the approval of the Committee, to enter
into any needed agreement or understanding with the
Secretary of the Treasury about the division of responsi
bility for foreign currency operations between the System
and the Secretary;
3/5/68
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B. To keep the Secretary of the Treasury fully
advised concerning System foreign currency operations,
and to consult with the Secretary on such policy matters
as may relate to the Secretary's responsibilities; and
C. From time to time, to transmit appropriate
reports and information to the National Advisory Council
on International Monetary and Financial Policies.
8. Staff officers of the Committee are authorized
to transmit pertinent information on System foreign
currency operations to appropriate officials of the
Treasury Department.
9. All Federal Reserve Banks shall participate in
the foreign currency operations for System Account in
accordance with paragraph 3 G (1) of the Board of
Governors' Statement of Procedure with Respect to Foreign
Relationships of Federal Reserve Banks dated January 1,
1944.
10.
The Special Manager of the System Open Market
Account for foreign currency operations shall keep the
Committee informed on conditions in foreign exchange
markets and on transactions he has made and shall render
such reports as the Committee may specify.
By unanimous vote,
the foreign currency directive given
below was reaffirmed:
FOREIGN CURRENCY
DIRECTIVE
1. The basic purposes of System operations in
foreign currencies are:
A. To help safeguard the value of the dollar
in international exchange markets;
B.
To aid in making the system of international
payments more efficient;
C.
To further monetary cooperation with central
banks of other countries having convertible currencies,
with the International Monetary Fund, and with other
international payments institutions;
3/5/68
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D. To help insure that market movements in
exchange rates, within the limits stated in the Interna
tional Monetary Fund Agreement or established by central
bank practices, reflect the interaction of underlying
economic forces and thus serve as efficient guides to
current financial decisions, private and public; and
E. To facilitate growth in international
liquidity in accordance with the needs of an expanding
world economy.
2. Unless otherwise expressly authorized by the
Federal Open Market Committee, System operations in
foreign currencies shall be undertaken only when
necessary:
A. To cushion or moderate fluctuations in the
flows of international payments, if such fluctuations (1)
are deemed to reflect transitional market unsettlement or
other temporary forces and therefore are expected to be
reversed in the foreseeable future; and (2) are deemed to
be disequilibrating or otherwise to have potentially
destabilizing effects on U.S. or foreign official reserves
or on exchange markets, for example, by occasioning market
anxieties, undesirable speculative activity, or excessive
leads and lags in international payments;
B. To temper and smooth out abrupt changes in
spot exchange rates, and to moderate forward premiums and
discounts judged to be disequilibrating. Whenever supply
or demand persists in influencing exchange rates in one
direction, System transactions should be modified or
curtailed unless upon review and reassessment of the
situation the Committee directs otherwise;
C. To aid in avoiding disorderly conditions in
exchange markets. Special factors that might make for
exchange market instabilities include (1) responses to
short-run increases in international political tension,
(2) differences in phasing of international economic
activity that give rise to unusually large interest
rate differentials between major markets, and (3) market
rumors of a character likely to stimulate speculative
transactions. Whenever exchange market instability
threatens to produce disorderly conditions, System
transactions may be undertaken if the Special Manager
reaches a judgment that they may help to reestablish
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3/5/68
supply and demand balance at a level more consistent
with the prevailing flow of underlying payments. In
such cases, the Special Manager shall consult as soon
as practicable with the Committee or, in an emergency,
with the members of the Subcommittee designated for that
purpose in paragraph 6 of the Authorization for System
foreign currency operations; and
D. To adjust System balances within the limits
established in the Authorization for System foreign
currency operations in light of probable future needs
for currencies.
3. System drawings under the swap arrangements are
appropriate when necessary to obtain foreign currencies
for the purposes stated in paragraph 2 above.
4. Unless otherwise expressly authorized by the
Committee, transactions in forward exchange, either
outright or in conjunction with spot transactions, may
be undertaken only (i) to prevent forward premiums or
discounts from giving rise to disequilibrating movements
of short-term funds; (ii) to minimize speculative distur
bances; (iii) to supplement existing market supplies of
forward cover, directly or indirectly, as a means of
encouraging the retention or accumulation of dollar
holdings by private foreign holders; (iv) to allow greater
flexibility in covering System or Treasury commitments,
including commitments under swap arrangements; (v) to
facilitate the use of one currency for the settlement of
System or Treasury commitments denominated in other
currencies; and (vi) to provide cover for System holdings
of foreign currencies.
By unanimous vote, the System open market transactions in
foreign currencies during the period February 6 through March 4,
1968, were approved, ratified, and confirmed.
Renewal for a further period of three months of the $100
million swap arrangement with the Bank of France, maturing on
March 29, 1968, was approved.
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-19By unanimous vote, the open market transactions in Govern
ment securities, agency obligations, and bankers' acceptances
during the period February 6 through March 4, 1968, were approved,
ratified, and confirmed.
By unanimous vote, the Federal Reserve Bank of New York
was authorized and directed, until otherwise directed by the
Committee, to execute transactions in the System Account in
accordance with the following current economic policy directive:
The information reviewed at this meeting indicates
that over-all economic activity has been expanding
rapidly, with both industrial and consumer prices
rising at a substantial rate, and that prospects are
for continuing rapid growth and persisting inflationary
pressures in the period ahead. The foreign trade surplus
has been at a sharply reduced level in recent months and
the imbalance in U.S. international payments remains
serious. Interest rates on most types of market
instruments have edged up recently, following earlier
declines. While growth in bank credit has moderated on
balance during the past three months, bank credit
expansion has been substantial in February, mainly
reflecting Treasury financings. Growth in the money
supply slowed in February, while flows into bank time
and savings accounts expanded moderately. In this
situation, it is the policy of the Federal Open Market
Committee to foster financial conditions conducive to
resistance of inflationary pressures and progress
toward reasonable equilibrium in the country's balance
of payments.
To implement this policy, System open market
operations until the next meeting of the Committee shall
be conducted with a view to attaining somewhat firmer
conditions in the money market; provided, however,
that operations shall be further modified if bank credit
appears to be expanding more rapidly than is currently
projected.
-20
3/5/68
It was agreed the next meeting of the Committee would be
held on Tuesday, April 2, 1968, at 9:30 a.m.
The meeting adjourned.
Secretary
@FedFRASER