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MINUTES OF THE MEETING OF T H E F E D E R A L ADVISORY C O U N C I L M ay 2 0 , 1963 T he s e c o n d s ta tu to r y m e e tin g o f th e F e d e r a l A d v is o r y C o u n c i l for 1 9 6 3 w a s c o n v e n e d in R o o m 932 o f the M a y f lo w e r H o t e l , W a s h in g to n , D. C ., on M ay 20, 19 63 , at 9 :3 0 A .M . P resent: G eorge A . M urphy D is tr ic t N o . G eo ffrey S m ith , A lte r n a t e 2 D is tric t N o . L . A . S toner D is tr ic t N o. Robert B . H obbs D is tr ic t N o. 5 J. F in le y M cR ae D is tric t N o. 6 Kenneth V. Z w ie n e r D is tric t N o. 7 J o h n F o x , A lte rn a te D is tr ic t N o. 8 Jo h n A . M oorhead D is tr ic t N o. M a u ric e L . B r e i d e n t h a l 3 4 9 D i s t r i c t N o . 10 I. F . B e tts , A lte r n a te D i s t r i c t N o . 11 E llio tt M c A llis te r D i s t r i c t N o . 12 H erbert V . P ro c h n o w S ecretary W illia m J . K o r s v ik A s s is t a n t Secretary A b se n t: L a w r e n c e H . M a rtin D is tric t N o. 1 H ow ard C . P e te rs e n D is tric t N o. 3 S id n e y M a e stre D is tr ic t N o. J a m e s W. A s t o n On m o tio n d u ly 8 D i s t r i c t N o . 11 made and seconded, the m im e o g rap h e d notes o f th e m e e tin g he ld on c o n c lu s io n s of Fe b rua ry 1 8 - 1 9 ,1 9 6 3 , w ere a p p ro v e d . A c o m p le te the C o u n c i l l i s t o f the ite m s are to be f o u n d in on th e the agenda for t h e m e e tin g , C onfidential Memorandum t he F e d e r a l A d v i s o r y C o u n c i l , w h i c h f o l l o w s o n p a g e s 17 a n d to the and th e B o a r d o f G o v e r n o r s from 18. T he m e e tin g a d jo u r n e d at 12 :4 0 P .M . HERBERT V. PROCHNOW Secretary WILLIAM J. KORSVIK Assistant Secretary 14 MINUTES OF TH E MEETING OF TH E F E D E R A L ADVISORY COUNCIL May 20, 1963 At 2:30 P .M ., th e Federal A d v is o ry C o u n c il convened in th e B oard Room of the Federal R eserve B u ild in g , W a s h in g to n , D . C . P resent: M r. G eorge H oward C . P e t e r s e n ; V. Z w ie n e r, M a u r ic e L. John A. M essrs. Fox, M urphy, L. A lte rn a te B r e id e n th a l, I. F. P re s id e n t; A . S ton e r, R o b e rt fo r B e tts, Mr. S id n e y A lte rn a te M r. G eoffrey B. H obbs, M aestre; fo r M r . S m ith , J. M essrs. Jam es W. A lte rn a te F in le y fo r Mr. M c R a e , K enneth John A sto n, A. and M oorhead, Mr. E l l i o t t M c A llis te r. A b se nt: M essrs. Law rence H. M a rtin , H ow ard C. P etersen, S id n e y M aestre and J a m e s W. A s t o n . M em bers o f th e of I n t e r n a t i o n a l B o a rd ’s staff, D iv is io n F in a n c e , p a rticip a te d in an of R e se arch a n d S t a t i s t i c s , a n d the D i v i s i o n a u d io - v is u a l pre se n tatio n on D o m e s tic HERBERT V. PROCHNOW Eco n o m ic D e v e l o p m e n t s , a n d F o r e i g n E c o n o m i c D e v e l o p m e n t s . Secretary W IL L IA M J . K O R S V IK A s s is t a n t Secretary 15 MINUTES OF THE MEETING OF T H E F E D E R A L ADVISORY C O U N C I L M ay 20, 1963 A t 8:30 P .M ., the F e d e r a l A d v is o r y C o u n c i l r e c o n v e n e d in R o o m 932 o f th e M a y flo w e r H o te l, W ash in g to n , D . C . P re sen t: H ow ard C . V. Z w ie n e r , M a u ric e Mr. G eorge Petersen; L. John A. M urphy, M essrs. L . Fox, B r e id e n th a l, A lte rn a te I. F. P re s id e n t; A . S ton e r, fo r B e tts, Mr. Robert S id n e y A lte rn a te for Mr. G eo ffrey B. Hobbs, M ae stre ; M r. A b se nt: M essrs. Law rence H. M a r tin , J. H ow ard C. r e g a rd in g th e A lte rn a te F in le y M essrs. Jam es M c A llis te r , H erbert V . P r o c h n o w , S e c re ta ry , a n d W illia m S m ith , J. W. John A sto n ; K o rs v ik , for Mr. M c R a e :, K enneth A. M oorhead, M essrs. E llio tt A s s is ta n t S ecretary. P etersen , S id n e y M ae stre and J a m e s W. A s t o n . The C o u n c il rev ie w e d its c o n c lu s io n s to t h e o f f i c e o f t h e S e c r e t a r y o f t h e B o a r d o f G o v e r n o r s f o l l o w s o n p a g e s 17 a n d 1 8 , l i s t i n g t h e a g e n d a i t e m s w i t h C o u n c il. The Memorandum w as d e liv e re d to th e Federal ite m s th e on the agenda, and sent C o n f i d e n t i a l M e m o ra n d u m w h ic h th e c o n c l u s i o n s Reserve B u ild in g reached at b y th e 1 0 :1 5 P .M . on M ay 2 0 , 1 9 63 . T he m e e tin g a d jo u rn e d at 9:3 5 P .M . H E R B E R T V. P R O C H N O W Secretary W IL L IA M J . K O R S V IK A s s is t a n t S ecretary 16 CONFIDENTIAL MEMORANDUM TO THE BO A RD OF G O V ERN O RS FROM FEDERAL R E L A T IV E THE A D V IS O R Y C O U N C IL TO THE AGENDA F O R T H E JO IN T M E E T IN G O N M A Y 2 1 , 1963 1. How do the m em bers and e c o n o m ic im p o rta n t in Does th e of th e prospects in flu e n c in g C o u n c il C o u n c il a p p ra ise current b u s in e ss fo r t h e r e m a i n d e r o f t h e y e a r ? the C o u n c i l ' s a n tic ip a te a d e v e lo p m e n ts W hat fa c to r s are m o st ju d g m e n t a b o u t the e c o n o m ic s u b s ta n tia l red uction in o u tlo o k ? u n e m p lo y m e n t in th e near-term fu t u r e ? B u s in e s s is g e n e ra lly C o u n c il has been w id e s p r e a d . g o o d a n d t h e i m p r o v e m e n t s i n c e th e a c o n tin u e d h ig h v o lu m e o f c o n s u m e r b u y in g . in g e n e r a l, suggest C o u n c il b e lie v e som e l a s t m e e t i n g of the R e t a i l s a le s a n d the p u rc h a s e of new a u to m o b ile s in d ic a te furth er in c re a s e th a t the e c o n o m ic O r d e r s fo r m a c h i n e t o o l s , a n d d u r a b l e g o o d s in b u s in e s s in v e s tm e n t. T h e m e m b e rs o f the p r o s p e c t s fo r t h e r e m a i n d e r o f t h e y e a r p o i n t to a c o n t in u a tio n o f th e p r e s e n t m o d e r a t e ly r i s i n g tr e n d in b u s i n e s s a c t i v i t y . In are the th e C o u n c il’s e x p an sio n in o p in io n , consum er th e b u y in g , most im p o rta n t b u s in e s s factors in v e s tm e n t, in and th e e c o n o m ic o u tlo o k governm ent spe n din g. T he a c c u m u l a t i o n o f i n v e n t o r i e s i n a n t i c i p a t i o n o f a n i n t e r r u p t i o n in s t e e l p r o d u c t io n a l s o is co n trib u tin g to the current le v e l of b u s in e s s a c tiv ity . The liq u id a tio n of th e s e in v e n to rie s la t e r in th e y e a r , h o w e v e r , m a y o f f s e t to s o m e e x t e n t th e r i s i n g trend o f b u s i n e s s . The C o u n c il does not a n tic ip a te a s u ffic ie n tly s h a r p r is e in b u s i n e s s a c t i v i t y to r e s u l t i n a s u b s t a n t i a l r e d u c t i o n i n u n e m p l o y m e n t i n t h e n e a r f u t u r e . 2. In the C o u n c il's recent w eeks m o d ity m e nts p ric e s to in s ta n c e s and c h a n g in g of o p in io n , be regarded p ric e s h o u ld as w ages, dem and th e s catte re d p ric e in c re a s e s rep orted in fo r e r u n n e r s o f a b ro a d u p w a r d m o v e m e n t in c o m or a re they and s u p p ly decreases or c o s t more in the nature re la tio n s h ip s ? re d u ctio n s of s e le c tiv e a d ju s t R eports w o u ld be of s ig n ific a n t of in te r e s t to the reported recent B oard. The weeks co u ld p rice s and C o u n c il be the w ages. b e lie v e s fo re ru n ne r H ow ever, c a p a c ity , a s w e ll a s from broad the p ric e r is e s in th at of the a the c o m p e titiv e m anufacturers r e la tiv e ly scatte re d p ric e som ew hat broader near pressures movement re s u ltin g a b r o a d , w i l l te n d future. in c r e a s e s upw ard M em bers in c o m m o d ity un use d d om estic to be s u f f i c ie n t to d is c o u r a g e of th e in s ta n c e s of p r ic e r e d u c t i o n s , p a r t i c u l a r l y in th e c h e m i c a l in d u s t r y . 17 from in C o u n c il reported so m e 3. Has the C o u n c il observed a general v e s t m e n t in p l a n t a n d e q u i p m e n t ? movement in g re a te r a c t u a l s p e n d i n g for s u c h p u r p o s e s surveys? A re th e ta x c r e d i t a n d tow ard in c re a s e d If s o , d o the i n c r e a s e s and b u s in e s s lik e ly d e p re c ia tio n fin a n c ia l c ir c le s in to r e s u l t th is ye a r th a n in d ic a t e d lib e ra liz e d in 1962, n o w re g a rd e d in b u s i n e s s seem by rece nt r u le s , m ade e ffe c tiv e as more s t im u la t iv e to i n v e s t m e n t in p l a n t a n d e q u i p m e n t t h a n w a s t h o u g h t e a r l i e r ? W h ile th ere is s o m e e v id e n c e o f i n d i v i d u a l u p w a r d a d j u s t m e n t s in b u s i n e s s vestm ent p la n s , s ig n ific a n t the C o u n c il e x p a n sio n is of th is re lu c ta n t ty p e to in t e r p r e t of s p e n d in g . it The C o u n c il b e lie v e s general movement b u s in e s s in tow ard a in v e s tm e n t in p la n t by r e c e n t s u r v e y s . th at a g ro w in g n u m b e r lib e ra liz e d a H ow ever, and e q u ip m e n t m ay be m o d e r a te ly a b o v e th a t in d ic a t e d now regard the ta x c r e d it a n d as d e p re c ia tio n in b u s in e s s ru le s as and fin a n c ia l c ir c le s m o re o f a s t i m u l a n t to i n v e s tm e n t in p la n t a n d e q u ip m e n t in c e r ta in in d u s t r i e s t h a n w a s t h o u g h t e a r l ie r . 4. Does the C o u n c il now regard e a rly tax re d u c tio n as e a rly tax re d u c tio n as e s s e n tia l to s u s ta in e d to s u s ta in e d b u s in e s s e x p a n s io n th is y e ar? The C o u n c il does not regard e s s e n tia l b u s in e s s e x p a n s io n th is y e a r, b ut a r e d u c tio n in th e tax b u r d e n is e s s e n tia l to the longer- te r m g r o w t h o f t h e e c o n o m y . 5. W h a t are th e p r o s p e c t s for l o a n d e m a n d a t b a n k s d u r i n g t h e n e x t s e v e r a l m o n th s, i n c l u d i n g d e m a n d in v a r io u s lo a n c a t e g o r i e s ? The C o u n c il b e lie v e s th at th e a n tic ip a te d e x p a n s io n re fle c te d in a ris e in th e o v er- a ll c r e d it d e m a n d s o f b u s i n e s s . in the econom y H o w e v e r , th e o f c o rp o ra te c a s h flo w s is l ik e ly to m o d e r a te th e d e m a n d for c o m m e r c i a l l o a n s It i s e x p e c t e d th a t th e i n c r e a s e in the m a jo r lo a n c a te g o rie s w ill w ill be larg e v o lu m e from b a n k s . be s o m e w h a t a b o v e the norm al s e a s o n a l pattern. 6. W h at are th e C o u n c i l ’ s o b s e r v a t i o n s r e g a r d i n g c u r r e n t a t t i t u d e s in th e b u s i n e s s and fin a n c ia l c o m m u n ity to w ard U .S . T he C o u n c il h a s n o te d a g ro w in g c o n c e r n b a la n c e of pay m ents a m o n g in fo r m e d ne ss and fin a n c ia l c o m m u n ity r e g a r d in g the p e r s is t e n c e d e v e lo p m e n ts ? persons in the b u s i o f th e d e f i c i t in o ur in t e r n a t io n a l paym ents. A lth o u g h the p ro b le m is e x c e e d i n g l y c o m p le x a n d d i f f i c u l t , i n c r e a s i n g n u m b e rs of persons b e lie v e that more d ete rm in e d and p o s itiv e c o rre c tiv e steps m ust be take n if the c o n t i n u i n g la rg e d e f i c i t s are to be e l i m i n a t e d . 7. H o w d o e s th e C o u n c i l e v a l u a t e th e i m p a c t o f c u r r e n t m o n e t a r y a n d c r e d it p o l i c y ? The C o u n c il b e lie v e s a b le im p a c t on the m e n ts , a g a i n s t th e econom y. background that current m o n e tary a n d H ow ever, of a r is in g th e p e rsis te n t le v e l c re d it p o lic y d e fic it of d o m e s tic in our b u s in e s s has a c tiv ity , th e a p p r o p r ia t e n e s s of a g r a d u a l l y m ore r e s t r i c t i v e m o n e t a r y a n d c r e d i t p o l i c y . 18 had a fa v o r in te r n a tio n a l pay sug ge sts MINUTES OF JOINT C O N F E R E N C E OF THE F E D E R A L ADVISORY COUNCIL AND THE B O A R D OF G O V E R N O R S OF THE F E D E R A L RESERVE SYSTEM M a y 2 1 , 19 63 At 10:15 A . M . , th e Federal A d v is o ry C o u n c il h e ld a jo i n t m e e t i n g w ith the B o a rd of G overno rs o f the F e d e r a l R e s e r v e S y s t e m in th e F e d e r a l R e s e r v e B u i l d i n g , W a s h i n g t o n , D . C . P re sen t: M e m b e rs o f th e B o a r d o f G o v e r n o r s o f the F e d e r a l R e s e r v e S y s te m : C h airm an A. L. M ills , Wm. Jr., M itch e ll: a ls o M cC. J. L. M a rtin , Jr.; R o b e rtso n , V ic e Chas. M r. M e r r i t t S h e r m a n , C h airm a n N. C. Shepardson, S ecretary, and Canby G. H. Mr. S p e n c e r , B ald e rsto n ; K in g , Jr. G overnors and G e o r g e W. G eneral A s s is ta n t in th e O ffice of the S e c r e ta r y . P resent: Mr. M em b e rs o f the F e d e r a l A d v is o r y C o u n c il : G eorge A. M urphy, P re s id e n t; M r. G eo ffrey S m ith , Petersen; M e ssrs. L . A . S to n e r, R o b e r t B . H o b b s , J . John F o x , A lte r n a t e for M r. S i d n e y A lte rn a te fo r Mr. H o w a r d C . F in le y M c R a e , K e n n e th V . Z w ie n e r, M aestre; M e s srs . Jo h n A . M o o r h e a d , M a u r ic e L . Brei- d e n t h a l , I . F . B e t t s , A l t e r n a t e f o r M r . J a m e s W. A s t o n ; M e s s r s . E l l i o t t M c A l l i s t e r , H e r b e r t V. P ro c h n o w , S e c r e ta r y , a n d W i ll ia m A bsent: M essrs. Law rence J . K o r s v ik , A s s is ta n t S ecretary. H. M a rtin , H ow ard C. on th e Agenda and P etersen, S id n e y M aestre and J a m e s W. A s t o n . The P r e s id e n t read as g i v e n i n Council, the as the firs t ite m Confidential Memorandum p rin te d s trengthened a n d on pages th at it w o u ld 17 and th e c o n c l u s i o n s to th e B o a r d o f G o v e r n o r s 18. He added be a goo d b u s in e s s th at of the C o u n c i l from the F e d e r a l A d v i s o r y the degree year re g a rd le s s o f o p tim ism had o f th e o u tc o m e o f the pro po se d tax l e g i s l a t i o n . P re s id e n t M urphy read d is c u s s io n fo llo w e d in the w h ic h second it was ite m and su g ge ste d the c o n c l u s i o n s that the o f the C o u n c i l . e x iste nc e of u n u s e d A b rief p ro d u c tiv e c a p a c it y in th e U n i t e d S t a t e s w a s a k e y f a c t o r l i m i t i n g d o m e s t i c p r ic e i n c r e a s e s . The th ird item and th e c o n c lu s io n s o f the C o u n c il w ere read by P r e s id e n t M urphy. In t h e e n s u i n g d i s c u s s i o n , i t w a s a c k n o w l e d g e d t h a t t h e t a x c r e d i t a n d l i b e r a l i z e d d e p r e c i a tio n r u l e s w e r e f a c t o r s i n t h e p r o j e c t e d i n c r e a s e s i n p l a n t a n d e q u i p m e n t s p e n d i n g . T he fourth ite m the P r e s i d e n t . to w h e t h e r t h e r e An e x t e n d e d on the A g e n d a a n d the c o n c lu s i o n s o f t h e C o u n c i l w e r e t h e n r e a d by H e a d d e d t h a t t h e r e w a s s o m e d i f f e r e n c e o f o p i n i o n w i t h i n the C o u n c i l as s h o u ld d is c u s s io n to r e d u c e f e d e r a l tax e s be a tax fo llo w e d . on re d u c tio n w ith o u t It d i s c l o s e d corporate p ro fits 19 and a re d u c tio n fa ir ly w id e personal in fe de ral e x p e n d itu re s . agreem ent in c o m e had th at the p r o p o s a l re s u lte d in a p s y c h o l o g ic a l “ b u i l d - u p " th a t m ig h t turn i n t o a “ le t d o w n " if n o t a x l e g i s l a t i o n Governor M itc h e ll, c o m m e n tin g on the im p o rta n c e of e c o n o m ic w ere e n a c te d . grow th , expressed c o n c e rn a b o u t the s a t i s f a c t o r y c o n t i n u a t i o n o f t h e c u r r e n t e c o n o m i c e x p a n s i o n . P r e s id e n t M urphy e m p h a s i z e d th e im p o r t a n t c o n t r i b u t io n i n v e s t m e n t s m a k e to e c o n o m ic grow th a n d th e s t r a t e g i c r o le o f p r o f i t s in i n v e s t m e n t d e c i s i o n s . The fifth item and the C o u n c il's c o n c lu s io n s w ere th e n read by the P re s id e n t. An extended d is c u s s io n fo llo w e d w ith m o st m e m b e rs o f th e C o u n c il p a r t i c i p a t in g . The s ix th ite m and the c o n c l u s i o n s o f th e C o u n c il w ere read by P re s id e n t M r. M c A l l i s t e r s t a t e d t h a t i n h i s j u d g m e n t t h e b a l a n c e o f p a y m e n t s M urphy. p r o b le m w a s more s e rio u s th an d o m e s tic u n e m p lo y m e n t. P r e s id e n t M urphy th e n read th e s e v e n t h it e m on th e A g e n d a a n d th e c o n c l u s i o n s o f the C o u n c il. stated In th e d i s c u s s i o n that the c o m m e rc ia l tic ip a te d lo an dem and even requests from abroad m ig h t d e v e lo p . w o u ld w h ic h fo llo w e d , b a n k in g i f th e be The d is c u s s io n sy ste m s u p p ly th e firs t a ls o tio n in in t e r e s t r a te s w o u ld h a v e l i t t l e w o u ld be o f reserves to fe el d is c lo s e d the th e M urphy, in re s p o n d in g a p o s itio n w ere reduced. e ffe ct o p in io n of any o f th e to to a q u e s tio n , accom m odate He c re d it added tig h te n in g C o u n c il that 20 an th a t lo an that a reduc s t im u la t in g e ffe c t on the d o m e s tic e c o n o m y . T he m e e tin g a d jo u rn e d a t 1 2 :4 5 P .M . P re s id e n t NOTE: T h i s t r a n s c r i p t of t h e S e c r e t a r y rs n o t e s is n o t to b e r e g a r d e d as c o m p l e t e or n e c e s s a r i l y e n t i r e l y accurate. The t r a n s c r i p t is f o r t h e s o l e u s e of t h e m e m b e r s of the F e d e r a l Advisory Council. T h e c o n c i s e o f f i c i a l m i n u t e s f o r the e n t i r e y e a r are p r i n t e d a n d d i s t r i b u t e d later. H.V.P. W.J.K. Th e S e c r e t a r y Ts n o t e s o f t h e m e e t i n g of t h e F e d e r a l A d v i s o r y C o u n c i l o n M a y 20, 1 9 6 3 a t 9 : 3 0 a . m . in R o o m 9 3 2 of the M a y f l o w e r H o t e l , W a s h i n g t o n , D. C. A l l m e m b e r s of the F e d e r a l A d v i s o r y C o u n c i l w e r e present except Messrs* Martin, Petersen, Maestre and Aston. Mr. G e o f f r e y Smith, Chairman of t h e B o a r d , G i r a r d T r u s t C o r n E x c h a n g e B a n k , P h i l a d e l p h i a , P e n n s y l v a n i a , a t t e n d e d as A l t e r n a t e f o r M r . P e t e r s e n ; M r . J o h n F o x , P r e s i d e n t , M e r c a n t i l e T r u s t C o m p a n y , St. L o u i s , M i s s o u r i , f o r M r . M a e s t r e ; a n d M r . I. F. B e t t s , P r e s i d e n t , A m e r i c a n N a t i o n a l B ank, B e a u m o n t Texas, f or Mr. Aston. The C o u n c i l a p p r o v e d t h e S e c r e t a r y 1s n o t e s f o r the m e e t i n g of February 1 8 - 1 9 * 1 9 6 3 . ITEM I HOW DO T H E M E M B E R S OF T H E C O U N C I L A P P R A I S E C U R R E N T BUSINESS D E V E L O P M E N T S A N D E C O N O M I C P R O S P E C T S F O R THE_ R E M A I N D E R / OF T H E YEAR? W H A T F A C T O R S A R E M O S T I M P O R T A N T I N I N F L U E N C I N G T H E C O U N C I L fS JUDGMENT A B O U T T H E E C O N O M I C O UTLOOK? DOES THE COUNCIL ANTICIPATE A SUBSTANTIAL R E D U C T I O N IN U N E M P L O Y M E N T IN THE NEAR-TERM FUTURE? P r e s i d e n t M u r p h y r e a d I t e m I a n d i n v i t e d c o m m e n t s f r o m the o t h e r members of t h e C o u n c i l . T h e r e w a s ag r e e m e n t that busi n e s s was g e n e r a l l y good and t h a t t h e i m p r o v e m e n t s i n c e t h e l a s t m e e t i n g of t h e C o u n c i l h a d teen w i d e s p r e a d . A n u m b e r o f m e m b e r s c i t e d t h e h i g h v o l u m e of c o n s u m e r buying a n d i n p a r t i c u l a r t h e p u r c h a s e o f n e w a u t o m o b i l e s * Orders for durable g o o d s , i n c l u d i n g m a c h i n e t o o l s w a s m e n t i o n e d as a n i n d i c a t i o n some f u r t h e r r i s e i n b u s i n e s s i n v e s t m e n t . T h e m e m b e r s of the Council b e l i e v e t h a t t h e e c o n o m i c p r o s p e c t s f o r t h e r e m a i n d e r of the 7-ar are g o o d a n d p o i n t t o a c o n t i n u a t i o n of t h e p r e s e n t m o d e r a t e l y rising t r e n d . A l l s e c t o r s o f t h e e c o n o m y s e e m to b e c o n t r i b u t i n g — consumers, b u s i n e s s a n d g o v e r n m e n t . The a c c u m u l a t i o n of Inve n t o r i e s , however, i n a n t i c i p a t i o n o f a n i n t e r r u p t i o n of s t e e l p r o d u c t i o n , w h i l e contributing t o t h e c u r r e n t l e v e l of b u s i n e s s a c t i v i t y , m a y p r o v e to b e 321 offs et l a t e r i n t h e y e a r as t h e s e s t o c k s a r e l i q u i d a t e d . The m e m of t h e C o u n c i l d o n o t a n t i c i p a t e a n y s u b s t a n t i a l r e d u c t i o n i n u n employment i n t h e n e a r f u t u r e » 2 I T E M II IN T H E C O U N C I L * S O P I N I O N , S H O U L D T H E S C A T T E R E D P R I C E INCREASES! R E P O R T E D I N R E C E N T W E E K S B E R E G A R D E D A S F O R E R U N N E R S OF A B R O A D UPWARD M O V E M E N T I N C O M M O D I T Y P R I C E S A N D W AGES, OR A R E T H E Y M O R E IN T H E N A T U R E O F S E L E C T I V E A D J U S T M E N T S TO C H A N G I N G D E M A N D A N D SBPPLY R E L A T I O N S H I P S ? R E P O R T S O F S I G N I F I C A N T I N S T A N C E S OF P R I C E D E C R E A S E S O R C O S T R E D U C T I O N S W O U L D B E OF I N T E R E S T TO T H E B O A R D . P r e s i d e n t M u r p h y r e a d I t e m II, The ensuing discussion disclosed some u n c e r t a i n t y a m o n g m e m b e r s o f t h e C o u n c i l as to t h e f u t u r e c o u r s e of p r i c e s * It w a s f i n a l l y c o n c l u d e d , however, that s c a t tered price increases of t h e r e c e n t p a s t c o u l d b e a f o r e r u n n e r of a s o m e w h a t broader u p w a r d m o v e m e n t * P r i c e r i s e s , h o w e v e r , are l i k e l y to b e m o d e r a ted s o m e w h a t b e c a u s e o f c o m p e t i t i v e p r e s s u r e s r e s u l t i n g f r o m unused domestic capacity, as w e l l as f r o m m a n u f a c t u r e r s a b r o a d * In stances of p r i c e r e d u c t i o n s w e r e r e p o r t e d , p a r t i c u l a r l y i n the f i e l d of p e t r o - c h e m i c a l s * ITEM III HAS T H E C O U N C I L O B S E R V E D A G E N E R A L M O V E M E N T T O W A R D I N C R E A S E D BUSINESS I N V E S T M E N T IN P L A N T AND E Q U I P M E N T ? I F SO, D O T H E I N C R E A S E S S E E M L I K E L Y T O R E S U L T IN G R E A T E R A C T U A L S P E N D I N G F O R SUCH P U R P O S E S T H I S Y E A R T H A N I N D I C A T E D B Y R E C E N T S U R V E Y S ? ARE THE T A X C R E D I T A N D L I B E R A L I Z E D D E P R E C I A T I O N R U L E S , M A D E E F F E C T I V E IN 1 9 6 2 , N O W R E G A R D E D I N B U S I N E S S A N D F I N A N C I A L C I R C L E S AS MORE STIMULATIVE TO I N V E S T M E N T IN PLANT AND EQUI PMENT THAN WAS THOUGHT E A R L I E R ? ____________________________________________________________________ Murphy r e a d I tem III. T h e r e w a s s o m e d i s c u s s i o n of t he r e c e n t surveys of b u s i n e s s m e n w h i c h s u g g e s t e d s o m e u p w a r d a d j u s t m e n t s of their p l a n t a n d e q u i p m e n t I n v e s t m e n t p l a n s . The Council, however, was r e l u c t a n t t o i n t e r p r e t t h i s as i n d i c a t i n g a g e n e r a l m o v e m e n t t o ward a s i g n i f i c a n t e x p a n s i o n o f t h i s t y p e of s p e n d i n g * O n the o t h e r hand, t h e r e w a s s o m e f e e l i n g t h a t b u s i n e s s i n v e s t m e n t i n p l a n t a n d equipment c o u l d b e m o d e r a t e l y a b o v e t h a t i n d i c a t e d b y r e c e n t s u r v e y s , The m e m b e r s o f t h e C o u n c i l a l s o b e l i e v e t h a t a g r o w i n g n u m b e r of p ersons i n b u s i n e s s a n d f i n a n c i a l c i r c l e s r e g a r d t h e t a x c r e d i t and the l i b e r a l i z e d d e p r e c i a t i o n r u l e s as m o r e of a s t i m u l a n t t h a n was t h o u g h t e a r l i e r * I T E M IV DOES T H E C O U N C I L N O W R E G A R D E A R L Y T A X R E D U C T I O N A S E S S E N T I A L TO S T A I N E D B U S I N E S S E X P A N S I O N T H I S Y E A R ? __________________________________ P r e s i d e n t M u r p h y r e a d I t e m IV * A b r i e f d i s c u s s i o n f o l l o w e d in which it w a s g e n e r a l l y a g r e e d t h a t a n e a r l y t a x r e d u c t i o n w a s n o t essential to s u s t a i n e d b u s i n e s s e x p a n s i o n t h i s y e a r * H o w e v e r , the ^'ouncil a g r e e d t o n o t e i n i t s r e p l y i t s s t r o n g f e e l i n g t h a t a r e d u c •^on in t h e t a x b u r d e n is e s s e n t i a l to t h e l o n g e r - t e r m g r o w t h of t h e sconoroy. ITEM V WHAT ARE T H E P R O S P E C T S F O R L O A N D E M A N D A T BANKS D U R I N G THE NEXT SEVERAL M O N T H S , I N C L U D I N G D E M A N D IN VARIOUS L O A N CATEGORIES? M u r p h y r e a d I t e m V a n d i n v i t e d c o m m e n t s f r o m t h e m e m b e r s of the T h e a n t i c i p a t e d e x p a n s i o n in b u s i n e s s is l i k e l y t o b e re<flected i n a r i s e i n t h e o v e r - a l l d e m a n d f o r c r e d i t * The large volume o f c o r p o r a t e c a s h f l o w s , h o w e v e r , Is l i k e l y to m o d e r a t e t h e demand f o r c o m m e r c i a l l o a n s f r o m b a n k s * T h e m e m b e r s of the C o u n c i l anticipate t h a t t h e i n c r e a s e i n t h e m a j o r l o a n c a t e g o r i e s w i l l be somewhat a b o v e t h e n o r m a l s e a s o n a l p a t t e r n * C o u n c il* I T E M VI W H A T A R E T H E C O U N C I L . ’S O B S E R V A T I O N S R E G A R D I N G C U R R E N T A T T I T U D E S IN THE B U S I N E S S A N D F I N A N C I A L C O M M U N I T Y T O W A R D U. S. B A L A N C E OF P A Y ________________________ ME N T S D E V E L O P M E N T S ? Murphy r e a d Item VI* A n e x t e n d e d d i s c u s s i o n f o l l o w e d a b o u t the persistent d e f i c i t i n t h e U n i t e d S t a t e s b a l a n c e of p a y m e n t s * While the p r o b l e m Is n o t w i d e l y u n d e r s t o o d , the m e m b e r s of t he C o u n c i l b e lieve t h e y d e t e c t a g r o w i n g c o n c e r n a m o n g i n f o r m e d p e r s o n s in the business a n d f i n a n c i a l c o m m u n i t y r e g a r d i n g t h e d e f i c i t in o u r I n t e r national p a y m e n t s . M a n y of these pe r s o n s b e l i e v e more de t e r m i n e d and positive c o r r e c t i v e s t e p s m u s t b e t a k e n if t h e c o n t i n u i n g l a r g e deficits are t o be e l i m i n a t e d * ITEM VII H O W D O E S T H E C O U N C I L E V A L U A T E THE. I M P A C T OF C U R R E N T M O N E T A R Y A N D :?.Z~IT P O L I C Y ? ___________________________________________________________ ________ President M u r p h y r e a d I t e m VII. It w a s s u g g e s t e d t h a t c u r r e n t monetary a n d c r e d i t p o l i c y h a s h a d a f a v o r a b l e i m p a c t on t h e economy a n d t h a t t h e a u t h o r i t i e s h a v e d o n e a g o o d job. H o w e v e r , the persistent d e f i c i t i n o u r i n t e r n a t i o n a l p a y m e n t s , a g a i n s t t h e b a c k ground of a r i s i n g l e v e l of d o m e s t i c b u s i n e s s a c t i v i t y , s u g g e s t s the appropriateness of a g r a d u a l l y m o r e r e s t r i c t i v e m o n e t a r y and credit policy. The m e e t i n g a d j o u r n e d at 1 2 : 14 .O P*M* T H E C O U N C I L C O N V E N E D I N T H E B O A R D R O O M OF T H E F E D E R A L R E S E R V E B U I L D I N G , W A S H I N G T O N , D. C . , A T 2 r 3 0 S U M . , ON M A Y 20, 1 9 6 3 . ALL M E M B E R S OF T H E C O U N C I L W E R E P R E S E N T EXCEPT MESSRS. MARTIN, PETERSEN, M A E S T R E A N D ASTON. MR. G E O F F R E Y SMITH ATTE N D E D AS A L T E R N A T E F O R MR. P E T E R S E N ; MR. JOHN F O X FOR MR. MAESTRE; A N D MR. I. F . B E T T S F O R M R . A S T O N . M e m b e r s o f t h e B o a r d 1s s t a f f , D i v i s i o n of R e s e a r c h a n d S t a t i s t i c s , and the D i v i s i o n o f I n t e r n a t i o n a l F i n a n c e , p a r t i c i p a t e d in an a u d i o visual p r e s e n t a t i o n o n D o m e s t i c E c o n o m i c D e v e l o p m e n t s , a n d F o r e i g n Economic D e v e l o p m e n t s . A r e s u m e of the p r e s e n t a t i o n w i l l be f o r w a r d e d to the m e m b e r s o f t h e C o u n c i l u p o n r e c e i p t f r o m t h e B o a r d ’s s t a f f . THE_ C O U N C I L . C O N V E N E D - A T 8 : 3 0 P . M . O N M A Y 20, 1 9 6 3 , I N R O O M 9 3 2 OF T H E M A Y F L O W E R H O T E L . A L L M E M B E R S OE. T H E C O U N C I L W E R E PRESENT E X C E P T M E S S R S . MARTIN, PETERSEN, MAESTRE AND ASTON. M R. G E O F F R E Y S M I T H A T T E N D E D A S A L T E R N A T E F O R M R . P E T E R S E N ; MR. J O H N FOX. F O R M R . M A E S T R E ; A N D M R . I. F. B E T T S F O R MR. A S T O N * T he C o u n c i l p r e p a r e d a n d a p p r o v e d t h e a t t a c h e d C o n f i d e n t i a l Memorandum t o b e s e n t t o t h e B o a r d of G o v e r n o r s r e l a t i v e to t h e A g e n d a for the j o i n t m e e t i n g o f t h e C o u n c i l a n d t h e B o a r d o n M a y 21, 1 9 6 3 * The Memorandum w a s d e l i v e r e d t o t h e F e d e r a l R e s e r v e B u i l d i n g at 1 0 : 1 5 p . m . o n Xaj 20, 1 9 6 3 . The m e e t i n g a d j o u r n e d at 9 : 3 5 P*m . CONFIDENTIAL MEMORANDUM TO THE BOARD OF GOVERNORS FROM THE FEDERAL ADVISORY COUNCIL RELATIVE TO THE AGENDA FOR THE JOINT MEETING ON MAY 21, 1963 1. How do the members o f the C o un cil ap p raise c u rre n t b u s i ness developments and economic prospects fo r the rem ainder o f the year? What fa c to r s are most im p o rta n t in i n f l u encing the C o u n c il's judgment about the economic outlook? Does the C o u n c il a n t ic ip a t e a s u b s t a n t ia l r e d u c tio n in unemployment in the near-term fu tu re ? B usiness is g e n e r a lly good and the improvement since the la s t meeting o f the C o u n c il has been w idespread. R e t a il sale s and the purchase of new autom obiles in d ic a t e a c o n tin u e d h ig h volume o f consumer b u y in g . Orders fo r machine t o o ls , and d u ra b le goods in g e n e ra l, suggest some further increase in b u sin e ss in v e stm e n t. The members o f the C o u n cil be lieve th a t the economic p ro sp e c ts fo r the rem ainder o f the year p o in t to a c o n tin u a tio n o f the p re s e n t m oderately r i s in g trend in b u sin e ss a c t i v i t y . In the C o u n c il's o p in io n , the most im p o rta n t fa c to r s i n the economic o u tlo o k are the expansio n in consumer bu y in g , b u sin e ss inve stm e nt, and government sp e n d in g . The a c c u m u la tio n o f in v e n to r ie s i n a n t i c ip a t i o n of an in t e r r u p t io n i n s te e l p r o d u c tio n a ls o is c o n t r ib u t in g to the c u r rent le v e l o f b u sin e ss a c t i v i t y . The l i q u i d a t i o n o f these in v e n to r ie s la te r in the y e a r, however, may o f f s e t to some e x te n t the r i s i n g trend o f business. The C o u n c il does n o t a n t ic ip a t e a s u f f i c i e n t l y sharp r is e in business a c t i v i t y to r e s u l t i n a s u b s t a n t ia l r e d u c tio n in unemployment in the near fu tu r e . 2. In the C o u n c il's o p in io n , should the s c a tte re d p r ic e i n creases re p o rte d i n re c e n t weeks be regarded as fo r e runners o f a broad upward movement i n commodity p r ic e s and wages, or are they more i n the n atu re o f s e le c tiv e ad ju stm e n ts to changing demand and supply r e la t io n s h ip s ? Reports o f s i g n i f i c a n t in s ta n c e s o f p r ic e decreases or c o s t r e d u c tio n s would be o f in t e r e s t to the Board. The C o u n c il b e lie v e s t h a t the s c a tte re d p r ic e in c re a se s re p o rte d in recent weeks c o u ld be the fo re ru n n e r o f a somewhat broader upward move ment in commodity p r ic e s and wages. However, the c o m p e titiv e pressures r e s u ltin g from unused dom estic c a p a c ity , as w e ll as from m anufacturers abroad, w i l l tend to be s u f f i c i e n t to disco urage broad p r ic e r is e s in the r e la t iv e ly near f u t u r e . Members o f the C o u n c il re p o rte d some in s ta n c e s of p rice r e d u c tio n s , p a r t i c u l a r l y in the chem ical in d u s tr y . -23. Has the C o u n cil observed a general movement toward i n creased b u sin e ss investm ent in p la n t and equipment? If so, do the in c re a se s seem li k e ly to r e s u lt in greater a c tu a l spending fo r such purposes t h is year than in d ic a te d by re c e n t surveys? Are the tax c r e d it and l i b e r a l i z e d d e p r e c ia tio n r u le s , made e ffe c tiv e in 1962, now regarded in b u sine ss and f in a n c ia l c ir c le s as more s t im u la t iv e to investm ent in p la n t and equipment than was thought e a r lie r ? W hile th ere i s some evidence o f in d iv id u a l upward adjustm ents in business inve stm e nt p la n s , the C o u n cil is r e lu c ta n t to in te r p r e t i t as a general movement toward a s i g n i f i c a n t expansion o f t h is type o f spending. However, b u sin e ss inv e stm e n t in p la n t and equipment may be moderately above th a t in d ic a t e d by re c e n t surveys. The C o u n c il b e lie v e s th a t a growing number in business and fin a n c ia l c ir c le s now reg ard the tax c r e d it and lib e r a liz e d d e p re c ia tio n rules as more o f a s t im u la n t to investm ent in p la n t and equipment in c e rta in in d u s t r ie s th an was th ough t e a r li e r . 4. Does the C o u n c il now regard e a r ly tax re d u c tio n as e s s e n t ia l to s u s ta in e d bu sin e ss expansion t h is year? The C o u n c il does n o t regard e a r ly tax r e d u c tio n as e s s e n tia l to sustained b u sin e ss e x p ansio n t h i s y e a r, b u t a r e d u c tio n in the tax burden is e s s e n tia l to the lo ng er- term growth o f the economy. 5. What are the p ro sp e c ts fo r lo a n demand a t banks d u rin g the n e x t s e v e ra l m onths, in c lu d in g demand in v a rio u s lo a n c a te g o r ie s ? The C o u n c il b e lie v e s th a t the a n t ic ip a te d expansion in the economy w i l l be r e f le c t e d i n a r is e in the o v e r- a ll c r e d it demands o f business. However, the la r g e volume o f co rporate cash flows is lik e ly to moderate the demand fo r com m ercial lo ans from banks. I t is expected th a t the increase in the m ajo r lo a n c a te g o rie s w i l l be somewhat above the normal seasonal p a t t e r n . 6. What are the C o u n c il’ s o b s e rv a tio n s reg arding cu rre nt a t t i t u d e s i n the b u sin e ss and f in a n c ia l community toward U. S. b a la n c e o f payments developments? The C o u n c il has noted a growing concern among informed persons in the b u sin e ss and f i n a n c i a l community re g ard in g the p e rsiste nce o f the d e f ic it in our in t e r n a t i o n a l payments. A lthough the problem is exceedingly complex and d i f f i c u l t , in c r e a s in g numbers o f persons b e lie v e th a t more determined and p o s it iv e c o r r e c tiv e steps must be taken i f the c o n tin u in g large d e f i c i t s are to be e lim in a t e d . -37. How does the C o u n c il e v alu ate the impact o f c u rre n t mone ta ry and c r e d it p o lic y ? The C o u n c il b e lie v e s th a t c u rre n t monetary and c r e d it p o lic y has had a fav o ra b le im pact on the economy. However, the p e r s is te n t d e f i c i t in our in t e r n a t io n a l payments, a g a in s t the background o f a r i s in g le v e l of domestic b u sin e ss a c t i v i t y , suggests the appro priateness o f a g ra d u a lly more r e s t r i c t i v e m onetary and c r e d it p o lic y . ON M A Y 2 1 , 1 9 6 3 , A T 1 0 : 1 5 A * M * , T H E F E D E R A L A D V I S O R Y C O U N C I L H E L D A J O I N T M E E T I N G W I T H T H E B O A R D O F G O V E R N O R S OF T H E FEDERAL R E S E R V E S Y S T E M IN T H E FEDERAL RESERVE BUILDING, W A S H I N G T O N , D. C. A L L M E M B E R S OF THE COUNCIL W E R E PRESENT EXCEPT M E S S R S * M A R T I N , PETERSEN, MAESTRE, AND ASTON* MR* G E O F F R E Y S M I T H A T T E N D E D . AS. A L T E R N A T E . F O R M R . P E T E R S E N ) MR. J O H N F O X F O R M R . M A E S T R E J A N D M R . I. F # B E T T S F O R MR. A S T O N * T H E F O L L O W I N G M E M B E R S O F T H E B O A R D OF G O V E R N O R S W E R E P R E S E N T : C HAIRMAN M A R T I N , V I C E C H A I R M A N B A L D E R S T O N , GOVERNORS MILLS, ROBERTSON, SHEPARDSON, KING, AND MITCHELL. MR. SHERMAN, S E C R E T A R Y , A N D M R . S P E N C E R , G E N E R A L A S S I S T A N T IN T H E OFFICE OF T H E S E C R E T A R Y , A L S O W E R E P R E S E N T . The m i n u t e s o f t h e j o i n t m e e t i n g a r e b e i n g p r e p a r e d i n t h e o f f i c e f the S e c r e t a r y o f t h e B o a r d o f G o v e r n o r s of t h e F e d e r a l R e s e r v e -stem* T h e i r c o n t e n t w i l l b e c o m p a r e d w i t h t h e n o t e s of t h e S e c r e t a r y f the C o u n c i l . A s s u m i n g t h e y a r e in s u b s t a n t i a l agreement, they will e distributed to t h e m e m b e r s of t he C o u n c i l * The m e e t i n g a d j o u r n e d a t 12:I]_5 p * m * The n e x t m e e t i n g of t h e Council will be S e p t e m b e r 16-17* 1963*
@FedFRASER