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Authorized for public release by the FOMC Secretariat on 5/27/2020



CaOCT 1 01968
September 24, 1968
Chairman Martin


S. J. Maisel

Policy Directive Revisited

Current Economic

In 1964 a committee of the FOMC was created in order to propose
improvements in the directive. As a result of that study, major progress
has been made in the policy statement and the directive.
The time appears ripe once again to create a subcommittee

charged with re-examining the directive and its background data so that
the form of the directive and the level of debate leading up to it may

be improved. There has been a turn-over of half the Committee since
that earlier discussion ended four years ago. A re-examination at this
time would aid in making continued progress possible. It would also
help the newer members by making clearer the concepts which are now embraced in the directive and policy statement.
The data, analysis, and projections made available to the Committee have improved steadily. The Green Book contains short-run forecasts of the GNP, prices, and employment. The chart shows contain annual

forecasts under certain alternative assumptions. The Blue Book contains
short-run monetary projections with quite explicit statements of the ex-

pected relationships among money market and marginal reserve conditions,
short-term interest rates, growth in reserves, the money supply, and the
credit proxy.

The staff briefings give some indications of possible in-

termediate movements.
While considerable progress has been made, a review of the
memoranda of discussion and the policy records show that gaps still exist.

The major problem area seems to be in what the previous subcommittee
labeled as information concerning the Committee's "policy intent" or what
others have called "the intermediate-term objectives of Committee policy."
While policy statements and the surrounding discussions vary,
most show but slight attention to any specifications of either over-all

policy objectives or the Committee's aims for monetary variables in any
intermediate period. The major exception is in the normal inclusion of
two or three formula-type phrases, such as "resist inflationary pressures"
or "aid in progress toward balance of payments equilibrium," at the end
of the first paragraph of the directive.
This is in sharp contrast to the former subcommittee's recomm-

mendations. They felt that the Committee's discussion and policy record
should include possible ranges for intermediate target variables of monetary policy such as reserves, bank credit, and the money supply. They


Authorized for public release by the FOMC Secretariat on 5/27/2020


Chairman Martin


September 24, 1968

stressed the advantages of explaining the selected ranges for these variables in light of the expected and desired movements of other magnitudes
such as GNP and employment; expectations of inflationary and deflationary
forces; the projected supply and demand for credit; the balance of pay-

ments; and interest rates.
A major task for the proposed subcommittee would be to see how
expressions of the policy intent could be improved. Several possibilities
exist. The Committee could agree on its broader policy goals periodically
with changes in the goals being altered as a result of specific debate
such as now takes place with respect to money market conditions. At the
same time, the Blue Book could include projected levels of the intermediate monetary variables consistent with the particular short-run policy
alternatives. With a range of intermediate variables available for debate, the Committee's intent regarding them could appear in the policy
record by use of expressions of views similar to those now included for
the more immediate money market conditions.