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Summary of Remarks by M. S. Szymczak, Member, Board of Governors of the Federal Reserve System, Washington, D. C. before the Annual Convention of the Associated General Contractors of America, Hotel Statler, Washington, D. C. March 12, 1S>57 9:30 a. m. Jfy topic today is "What Is Monetary Policy?" A cardinal requirement of monetary policy is proper adaptation to the particular circumstances of each change in the economic situation. In 1 d u r i n g which unemployment rose in the United States, the Federal Reserve System followed a policy which facilitated an expansion of credit and an increase in the money supply. In 1956, with employment at peak levels, and with the economy pressing against the limits of capacity, the Federal Reserve System followed a general policy of restraint on further expansion of credit. This does not mean in the literal sense that the Federal Reserve decided to "make" credit scarce. Fundamentally, the scarcity of credit was a product of the market forces of supply and demand. It merely reflected a scarcity of economic resources relative to demand in a free market economy. What the Federal Reserve System did was to refrain from making new Federal Reserve credit available in amounts that would have been necessary to meet all demands at current rates, since to do so would obviously have resulted in more price inflation as holders of the new credit bid against one another for the limited economic resources available. The efforts of the Federal Reserve to foster high levels of business and employment, maintain stability of the purchasing power of the dollar, and promote sustainable growth in the economy are a matter of more than academic interest to the construction industry that you represent. The construction industry is a vital force in the American economy. Over-all construction outlays— public and private, residential and nonresidential — totaled billion last year. In particular, the members of this organization are remaking in important ways — tangible and intangible -- the face of the American scene. Industrial and commercial buildings, engineering projects of all sorts, schools, roads, and other public works are largely your handiwork. The importance of the industry rests not only on its size and the usefulness of its output, but also on the economic activity it generates for other business groups. Truly, because of its enormous direct and indirect influence on the level of economic activity, all of us have a big stake in the quantity and quality of your work. Correspondingly, you — as well as all Americans — have a big stake in the stable growth of our economy. struction industry — Indeed, the con- even more than the economy as a whole — has suffered from violent ups and dox-ms over the years. The adaptation of Federal Reserve policy to the differing circumstances I have cited illustrates how Federal Reserve policy is, at all times, based upon an awareness of the high economic cost of violent and excessive contraction or expansion of credit. In the past the economic climate ha3 undergone important shifts, and we can safely expect that it will continue to do so in the future. for example, some changes appear to be taking place in demand Today, -3- forces, and yet industrial and manpower resources continue to be intensively employed and average prices are still rising. Always it is difficult to foresee the future, but we can at least — and indeed we must — be alert to signs of change and ready to adapt ourselves accordingly. I want to emphasize, however, that monetary policy alone cannot achieve economic stability at high employment levels. It is only one essential part of a much broader program — involving both government and business — all aspects of which must be wisely pursued if we are to realize our goal.
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