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Authorized for public release by the FOMC Secretariat on 4/17/2020 CONFIDENTIAL (FR) November 7, 1964 NOV 9.954 Trial "New Style" Directive for November 10, 1964 FOMC Meeting 1 1. Underlying domestic economic conditions appear 2 to have continued favorable in October despite work stoppages 3 in the automobile industry. 4 work stoppages, retail sales apparently remained strong in 5 recent weeks. 6 commodity price averages, but no improvement has been 7 achieved in the unemployment situation. 8 9 Apart from the effects of these Stability has been maintained in over-all Although declines in output in the auto and closely related industries are estimated to have reduced the index 10 of industrial production for October between 2 and 3 11 percentage points, activity in industries not affected by 12 the work stoppages probably was maintained or increased 13 further. 14 adjusted basis in October, but sales at furniture and 15 appliance stores and at outlets for nondurable goods were 16 up. 17 per cent, about the level prevailing since spring. 18 New car sales were down sharply on a seasonally The over-all unemployment rate was unchanged at 5.2 In September manufacturers increased inventories 19 at about the stepped-up pace of July and August. Distributors' 20 stocks, which had been declining earlier, also rose. 21 the third quarter as a whole, however, total business 22 inventory accumulation was small. 23 inventories probably fell again as dealer stocks of new autos 24 dropped sharply. For Most recently, trade Authorized for public release by the FOMC Secretariat on 4/17/2020 1 Total construction activity edged down further in 2 October, 3 below the highs reached earlier in this expansion period. 4 Residential building continued to run appreciably Results of a recent private survey indicate that 5 the rate of increase in business plant and equipment spending 6 may moderate in the coming year. 7 outlays in 1965 were 5 per cent above the projected 1964 8 total, implying a level of spending next year little changed 9 from the rate of the current quarter. 10 Reported plans for capital The broad measures of wholesale prices for industrial 11 as well as for all commodities have remained relatively 12 stable. 13 nonferrous metals, but selective increases continue to be 14 announced for other commodities. 15 price increases announced earlier in the summer have not 16 been reflected in the broad indexes, suggesting that they 17 may not have become effective. 18 continued to rise at the slow pace of recent years. 19 Strong upward price pressures are still limited to Some of the individual The consumer price index Preliminary data suggest a deficit in the U.S. 20 balance of payments in October of about $600 million before 21 seasonal adjustment. 22 little larger than in October 1963, but it would not 23 represent deterioration from the third quarter of this year 24 on a seasonally adjusted basis. 25 window dressing by Canadian banks resulted in large outflows A deficit of this size would be a As is usual in October, Authorized for public release by the FOMC Secretariat on 4/17/2020 1 of short-term capital from the U.S. 2 purchases of new foreign bond issues increased last month, 3 as a backlog of Canadian issues came to market following 4 enactment of the interest equalization tax. 5 surplus rose in September, mainly as a result of higher 6 exports in anticipation of a possible port strike. 7 In addition, U.S. The trade 2. Private demands for cash balances and bank 8 credit slackened in October, in part because of the temporary 9 dampening in over-all economic expansion. The money supply 10 declined in the second half of the month, after increasing 11 sharply in the first half, and rose at a 4.6 per cent annual 12 rate for October as a whole. 13 rose at a 4 per cent rate in October, the same as in the 14 year to date, while the currency component rose 7 per cent 15 in October as compared with 6 per cent in the year to date. 16 The demand deposit component Total loans and investments of all commercial 17 banks probably declined moderately in October, partly 18 offsetting the sharp September rise. 19 reflected a decrease in bank holdings of U.S. Government 20 securities and security loans that more than offset 21 moderate increases in other loans and in holdings of 22 municipal and Federal agency issues. 23 loans was substantially less than in other recent months. 24 The flow of savings to financial intermediaries 25 continued large. The October reduction The rise in business Time and savings deposits at all commercial Authorized for public release by the FOMC Secretariat on 4/17/2020 1 banks rose $1.4 billion in October, more than in other 2 recent months. 3 savings banks and of shareholdings at savings and loan 4 associations has been rapid recently. Similarly, growth of deposits at mutual The combination of somewhat reduced demands for 5 6 outside financing, a continuing large flow of savings, and 7 growing investor confidence in current interest rate levels, 8 has resulted in somewhat easier money market conditions 9 and stronger bond markets in recent weeks. The flow of 10 Federal funds increased in October, and while some transac- 11 tions took place at a rate slightly above the discount rate, 12 the average Federal funds rate for the month was a little 13 lower than in September. 14 securities dealers also declined slightly. Bank lending rates to Government In securities markets, yields on long-term 15 16 Government bonds at the end of October were close to their 17 lowest levels since early August. 18 offered corporate bonds and on mixed-grade municipal bonds 19 have also turned down, although the indexes for seasoned 20 higher grade issues in both markets have remained quite 21 steady. 22 around a level slightly below the record high reached in 23 mid-October. 24 25 Yields on recently Common stock prices have fluctuated The somewhat easier money market conditions were accompanied by a slightly lower level of member bank Authorized for public release by the FOMC Secretariat on 4/17/2020 -5With excess reserves also 1 borrowings than in September. 2 lower, free reserves were about the same on average. 3 reserves and nonborrowed reserves declined in October, as 4 a decrease in reserves held against Government balances 5 more than offset a rise in reserves against total private 6 balances. 7 3. Total In light of the apparent underlying strength 8 in economic conditions and the continued general stability 9 in broad commodity price indexes, but the failure of the 10 unemployment rate to decline in recent months and the 11 persistence of a sizable deficit in the balance of payments, 12 it is the current objective of monetary policy to accommodate 13 moderate further expansion in bank credit and the money 14 supply in an environment of substantially unchanged credit 15 conditions. 16 of savings, supplemented by such bank credit and monetary 17 expansion, will enable prospective demands for funds from 18 Government as well as private borrowers to be met within a 19 narrow range of fluctuation in longer term interest rates, 20 but in a climate of seasonally firmer money market conditions 21 than prevailed in October. 22 Federal Open Market Committee seeks to supply sufficient 23 reserves to support (1) the rise of currency in circulation 24 over and above seasonal fluctuations, (2) actual changes in 25 U.S. Government demand deposits and private time and savings It is expected that the continuing large flow With these ends in view, the Authorized for public release by the FOMC Secretariat on 4/17/2020 1 deposits, and (3) a seasonally adjusted annual rate of 2 increase in the demand deposit component of the money supply 3 over the months ahead averaging about the same as in the 4 year to date. 5 4. To implement this policy, System open market 6 operations over the next three weeksshall be conducted with 7 a view to achieving weekly average free reserves around 8 $50 million; provided however, that such reserves shall be 9 permitted to move above or below this level in order to 10 moderate any movements in the 3-month Treasury bill rate 11 outside the range of 3.55 to 3.65 per cent or any serious 12 constriction or excess in the availability of Federal funds 13 or dealer financing.
@FedFRASER