FOMC Minutes
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.,
PRESENT:
on Tuesday,
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
May 11,
1965,
at 9:30 a.m.
Martin, Chairman
Hayes, Vice Chairman
Balderston
Bryan
Daane
Ellis
Galusha
Maisel
Robertson
Scanlon
Shepardson
Messrs. Hickman, Clay, and Irons, Alternate Members of
the Federal Open Market Committee
Messrs. Wayne, Shuford, and Swan, Presidents of the
Federal Reserve Banks of Richmond, St. Louis, and
San Francisco, respectively
Mr. Young, Secretary
Mr. Sherman, Assistant Secretary
Mr. Kenyon, Assistant Secretary
Mr. Broida, Assistant Secretary
Mr. Hackley, General Counsel
Mr. Noyes, Economist
Messrs. Baughman, Holland, and Koch, Associate
Economists
Mr. Holmes, Manager, Sys:em Open Market Account
Mr. Molony, Assistant to the Board of Governors
Mr. Cardon, Legislative Counsel, Board of Governors
Messrs. Partee and Williams, Advisers, Division of
Research and Statistics, Board of Governors
Mr. Hersey, Adviser, Division of International
Finance, Board of Governors
Mr. Axilrod, Chief, Government Finance Section,
Division of Research and Statistics, Board
of Governors
Miss Eaton, General Assistant, Office of the
Secretary, Board of Governors
Messrs. Hilkert and Patterson, First Vice Presidents
of the Federal Reserve Banks of Philadelphia and
Atlanta, respectively
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Messrs. Eisenmenger, Mann, Jones, Parsons, Tow,
and Green, Vice Presidents of the Federal
Reserve Banks of Boston, Cleveland, St. Louis,
Minneapolis, Kansas City, and Dallas, respec
tively
Mr. Lynn, Director of Research, Federal Reserve
Bank of San Francisco
Messrs. Fousek and Parthemos, Assistant Vice
Presidents of the Federal Reserve Banks of
New York and Richmond, respectively
Messrs. Geng and Meek, Managers of the Securities
Department, Federal Reserve Bank of New York
Mr. MacLaury, Manager, Foreign Department, Feceral
Reserve Bank of New York
Mr. Rothwell, Economist, Federal Reserve Bank of
Philadelphia
Chairman Martin noted that two new members of the Committee were
attending their first meeting today--Sherman J. Maisel, member of the
Board of Governors, and Hugh D. Galusha, Jr., President of the Federal
Reserve Bank of Minneapolis--and that both had executed their oaths of
office as members of the Federal Open Market Committee prior to today's
meeting.
Upon motion duly made and seconded,
and by unanimous vote, the minutes of the
meeting of the Federal Open Market Commit
tee held on April 13, 1945, were approved.
Before this meeting there had been distributed to the members
of the Committee a report from the Special Manager of the System Open
Market Account on foreign exchange market operations and on Open Market
Account and Treasury operations in foreign currencies for the period
April 13 through May 5, 1965, and a supplemental report for May 6 through
10, 1965.
Committee.
Copies of these reports have been placed in the files of the
5/11/65
In comments supplementing the written reports, Mr. MacLaury
said that
the Treasury had not yet decided whether to show a decline
in the gold stock this week, but probably would reach a decision today.
The last published change was the $150 million drop during the week
ended April 14.
Since mid-April, however, sales to foreign countries
out of the Stabilization Fund's holdings had continued, with the result
that the Fund's holdings, which were approximately $150 million at mid
April, were now down to about $45 million.
Between now and the end of
May, a further drain was anticipated on the Stabilization Fund's gold
holdings of more than $100 million, mainly attributable to further
sales to Spain ($30 million, for value today), Austria ($12.5 million),
and France
($50 million).
There was little doubt, therefore, that there
would have to be another drop in the gold stock this month;
the only
question concerned its timing.
On the London gold market, Mr. MacLaury reported, the fixing
price reached an April high of about $35.17
at mid-month.
Thereafter,
the price eased as supplies from new production, together with some
sales by disappointed speculators, sufficed to meet the continued
moderately active demand.
figure by recent standards.
This morning the price was $35.1020, a low
The gold pool on balance picked up gold
during the latter half of April, and for the month as a whole showed
a surplus of about $10 million, leaving the cumulative deficit since
the beginning of the year at $183 million.
That figure had been
maintained with minor fluctuations thus far in May.
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In the exchange markets, Mr. MacLaury observed, the Committee
would recall that sterling began to show a somewhat better tone fol
lowing the presentation of the British budget on April 6 and particu
larly after the Prime Minister's speech to the Economic Club of New
York on April 14.
As the sterling rate strengthened (from about
$2.7950 at mid-month to about $2.7975 on April 20) the New York Reserve
Bank, with the agreement of the Bank of England, began to sell limited
amounts of sterling in the New York market to reduce somewhat System
and Treasury balances that had been acquired last fall at the time of
the sterling crisis.
During the week of April 22-28, $9.1 million
equivalent was sold in New York for System account and $7 million for
Treasury account.
lion equivalent
In addition, $1.4 million equivalent and $2.8 mil
for the two accounts, respectively, were sold directly
to the Bank of England as it picked up dollars on a moderate scale in
London.
As a result of those sales, the System's sterling position
was reduced from about $52 million equivalent to about $41.5 million,
while the Treasury's position dropped from $71.5 million equivalent to
$61.7 million.
Although the sales, as was the intention, were absorbed by the
market without difficulty, Mr. MacLaury continued, it had not seemed
wise to press the operations further for the time being.
As the Com
mittee was aware, the market for sterling had not been particularly
strong in the last couple of weeks.
The one exception was at the end
of April when the Bank of England, rather than announcing the reduction
in Bank rate that had been widely expected by the market, introduced
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special deposit requirements for the London clearing banks and Scottish
banks.
The market reacted favorably to that unexpected tightening of
British monetary policy, and the pound moved nearly to parity with
the Bank of England taking in some $60 million.
intake in the recent period.
That was the largest
Thereafter, the market moved in a range
of about $2.7975-90 without any strong trend; this morning the rate
was $2.7986.
Sterling eased a week ago today (May 4) when the British
authorities announced only a moderate increase of reserves in April
(of $22.4 million, to $2,352.1 million).
The market had expected a
larger increase and was taken aback somewhat by the statement that the
Bank of England had had recourse to further central bank credits prior
to the budget message, only part of which had subsequently been repaid.
During April, the Bank of England drew some $200 million from central
banks other than the Federal Reserve System, and on balance repaid $40
million of its drawings on the System.
Its indebtedness to foreign
central banks after those transactions, therefore, stood at $280 million
drawn on the Federal Reserve swap and some $800 million drawn on other
central banks.
Although the technical position of sterling remained strong
and market sentiment was definitely better than it was a month or so
ago, Mr. MacLaury said, there clearly had been no rush by the market
to cover forward sterling commitments.
However, the strengthening
of the forward rate, apart from reflecting speculation on a Bank rate
reduction, did indicate that there might be some covering of such
commitments going on.
The market was still vulnerable to unfavorable
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headlines, and probably would remain so as long as the British efforts
to reach agreement on an incomes policy remained in a state of flux
and uncertainty continued concerning the government's stability, partic
ularly in the light of the steel nationalization discussions.
Under
the circumstances, it was of great importance that the British authorities
continue to have at their disposal resources with which to counter pos
sible speculative pressures.
In this connection, Mr. MacLaury noted
that all of the hurdles had been cleared for the British International
Monetary Fund drawing of $1.4 billion later this month.
It was under
stood that the British would use a good part of the proceeds to pay
off their short-term indebtedness.
Press reports had indicated that
some $700 million would be required for that purpose, but the New York
Bank's calculations indicated that $1.1 billion would be required.
Accordingly, assuming no large market transactions in the intervening
period, about $300 million would remain from the drawing after repayment
of short-term debts.
With respect to continental currencies, Mr. MacLaury reported
that the System had been able to make some progress during the period
in paying off swap drawings.
The most notable change was the prepay
ment of $50 million equivalent of the swap drawings with the Swiss
National Bank.
The major portion of that repayment ($45 million was
made possible by purchases of francs from the Swiss National Bank when
difficulties of two small Swiss banks reportedly contributed to market
selling of Swiss francs and necessitated heavy offical support of the
Swiss franc.
That problem was a temporary one, although the Swiss franc
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had tended to remain well below its ceiling.
There was some possibility
that further repayments on that drawing could be made before its maturity
on June 1, since the Swiss authorities were now using dollars from their
reserves to purchase Italian lire in connection with remittances by
Italian workers in Switzerland.
Such remittances had previously been
used to pay down the $100 million swap between the Swiss National Bank
and the Bank of Italy, but that swap now had been fully liquidated.
In addition to repayments on the Swiss drawing,
Mr.
MacLaury
said, early in the period the System paid off the last $5 million
equivalent of its drawing on the German Federal Bank,
equivalent of its drawing on the Netherlands Bank,
to $45 million equivalent.
at the moment,
bringing the latter
the System's gross
$525 million and its net debtor position was $245
debtor position was
million.
Thus,
and also $5 million
Those figures compared with $580 million and $210 million,
respectively,
at the time of the last meeting of the Committee.
So far as the situation in
MacLaury continued,
the Netherlands was concerned,
Mr.
during the period the Syscem was also able to
reduce its forward guilder commitments by $25.3 million equivalent,
to the present level of $54.5 million equivalent.
The Treasury's guilder
obligations were also reduced, by $20.6 million equivalent to $64.1
million equivalent.
That meant, in effect, that the series of forward
guilder contracts undertaken last December and January had now either
been liquidated or rolled over through new sales.
further reductions in
The prospects for
the U.S. guilder obligations were mixed; on the one
hand the Account Management had been told that the Dutch money market
5/11/65
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was expected to remain tight throughout May; on the other hand, the
New York Bank might be able to acquire some guilders, as well as other
needed currencies, at the time of the U.K. drawing on the Fund.
Thereupon, upon motion duly made
and seconded, and by unanimous vote,
the System open market transactions in
foreign currencies during the period
April 13 through May 10, 1965, were
approved, ratified, and confirmed.
As he mentioned earlier, Mr. MacLaury said, it was hoped to
reduce further the System's drawings on the Swiss National Bank.
However, in the event that was not possible, he requested the Com
mittee's approval of a renewal for another three months of the drawing
on the Swiss National Bank, now in the amount of $20 million, which
matured on June 1.
This would be a first renewal.
Possible renewal of the S20 million
drawing on the Swiss National Bank for a
further period of three months was noted
without objection.
Mr. MacLaury then noted that the $750 million swap arrangement
with the Bank of England would mature on May 28, 1965, and recommended
its renewal for another twelve months.
Mr. Daane said that in light of the discussions at Paris and
Basle last week he thought it was important to support the British
by renewing the swap line.
Chairman Martin expressed similar views.
Renewal of the $750 million swap
arrangement with the Bank of England
for a further period of twelve months
was approved unanimously.
Finally, Mr. MacLaury said, the System probably would roll over
its $15 million equivalent sterling/guilder swap for another three
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months (and the Treasury would do the same).
This would be a second
renewal.
Renewal of the $15 million equivalent
sterling/guilder swap for a further period
of three months was noted without objection.
Chairman Martin then invited Mr. Daane to comment on develop
ments at the meetings he had attended recently in Paris and Basle of
Working Party 3, the Group of Ten Deputies, and the Bank for Inter
national Settlements.
Mr. Daane said he would report first on the weekend meeting
of the BIS at Basle.
The tone of the discussion at that meeting was
quite mild, for the obvious reason that the substance, relating mainly
tc the British drawing on the IMF, had already been covered in earlier
meetings.
Lord Cromer of the Bank of England discussed recent develop
ments in sterling in a little more detail than the British had at the
preceding meetings in Paris, and was quite optimistic with respect to
the recent strength of the pound.
He noted that the British had gained
something over $100 million equivalent in spot sterling since announce
ment of the budget, most of which was acquired since the April 30
announcement of special bank deposit requirements.
They had repaid
about $100 million of continental central bank advances and added $22
million to their reserves, and their total gain came to about $140
million, taking into account the decrease in Federal Reserve and U.S.
Treasury holdings of sterling that Mr. MacLaury had reported.
That
left them with short-term obligations under the stabilization package
of slightly under $1.1 billion--specifically, $1.097 billion.
Lord
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Cromer also commented at some length on his recent letter to the clear
ing banks.
The spirit of that letter was being relayed to all financial
institutions; they would be informed that the budget contemplated an
increase of only 5 per cent in bank advances from mid-March 1965 to
mid-March 1966.
That would represent quite a change from the last two
years, when the increase in advances had been 14 and 16 per cent,
respectively.
Lord Cromer also reported that Britain was experiencing
a shortage of mortgage money for house building.
There was general satisfaction expressed with the credit measures
now being taken by the British, Mr. Daane said.
As the chairman of the
Basle meeting put it, 5 per cent was a severe limit.
The only critical
question raised at Basle was with respect to the method the British
used to finance their domestic budget deficit.
In effect, through the
Exchange Equalization Account they used the proceeds of their sales of
foreign exchange for this purpose.
That meart that the larger their
external deficit the more easily they could finance their domestic
Some of the Basle members noted that that was a rather odd
deficit.
procedure unless it was conceded that domestic deficits always should
be financed in an inflationary fashion.
Mr. Blessing, President of the Bundesbank, gave a rather strongly
worded statement on conditions in Germany at the Basle meeting, Mr. Daane
continued.
Mr. Blessing noted that the boom was continuing and that
restrictive measures were being taken in both short- and long-term
markets.
Among other things he expected the rate of house construction
to be dampened and considered that a desirable development.
The Germans
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were making a determined effort to keep prices from rising.
Their
balance of payments now seemed to be moving into deficit.
Turning to the preceding meetings in Paris, Mr. Daane said
that the two half-day sessions of the Working Party 3 meeting on
May 5 and 6 were devoted almost entirely to interrogation of the
British and discussion of their situation, leaving only a brief
period for review of the U.S. situation.
He felt that the tone of
the whole discussion was sympathetic and constructive.
There was
general concern about the narrowness of the margin of safety in the
British program.
It was felt that the British would manage quite
well if all of their projections proved accurate, but that there was
no real margin for error.
There was general uneasiness about the
degree of progress the British were making toward their goal of
releasing resources to the export industries.
It was thought that
their program did not provide for a sufficient cut-back in domestic
demand, especially since all of the cut-back called for rested on
the private rather than the government sector of the economy.
A
budget hardly could be considered deflationary or even neutral when
it called for a substantial increase in government spending.
And there
was some feeling that the monetary measures taken still had allowed too
great a degree of credit availability, although the April 30 action on
bank advances won commendation.
Finally, considerable skepticism was
expressed abouc the probable efficacy, at least in the short run, of
the government's incomes policy.
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The British representatives volunteered the suggestion that
the whole British situation be reviewed at Working Party 3 meetings
in July, September, and December, Mr. Daane continued.
His own judg
ment was that the willingness of the continental countries to go along
with the British rested more on the content of Chancellor Callaghan's
letter of intent to the Managing Director of the IMF than on the govern
ment's program.
In his letter Mr. Callaghan said flatly that the Brit
ish were determined to take such further action as was necessary, includ
ing monetary action.
It was hard to quarrel with such a statement.
Discussion of the British situation was continued in the suo
sequent meeting of the Group of Ten Deputies, Mr. Daane said.
That
meeting was concerned specifically with the question of activating the
General Arrangements to Borrow in connection with the British Fund
drawing.
Most of the session was devoted to the wording of the com
munique to be issued; after the earlier meetings there was a clear
Only two sub
initial consensus that the GAB should be activated.
stantive issues were considered at any length, both of which related
to the composition of the proposed drawing.
The gold component in the
proposal had been raised to $400 million from the figures of $250 million
and $350 million that had been discussed earlier.
Many of the conti
nental representatives expressed satisfaction over that increase, but a
number felt that $400 million was still too low.
The American repre
sentatives took no part in this discussion on the ground that it basically
was a question for the IMF.
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There also was some dissatisfaction expressed over the size of
the dollar component, $250 million, Mr. Daane observed.
The Americans
indicated that they thought that amount was sufficiently high, with
Under Secretary of the Treasury Deming resting the U.S. case principally
on two grounds.
The first was that as a matter of basic principle the
Fund should not draw on the currency of a deficit country in connection
with this sort of operation.
Mr. Polak of tne Fund endorsed that prin
ciple, but it was not accepted by the continental representatives, who
pointed out that most of their countries now were in a deficit position.
Secondly, Mr. Deming advanced the more pragmatic argument that the
exposure of the U.S. after the drawing would be much greater than that
of other countries because of the System's swap line with the Bank of
England, the Export-Import Bank credit, and the volume of dollar secu
rities in the British portfolio.
The continental representatives were
unwilling to accept the existence of the swap line or the Export-Import
Bank credit as a justification for a low dollar component because those
were matters of this country's own bilateral doing.
However, they were
quite willing to accept the proposition that the U.S. had what, in a
sense, was an unwanted responsibility as a result of the dollar secu
rities in the British portfolio.
In any case, they agreed to activate
the GAB and to go along with the revised package as proposed by the
Managing Director.
The Deputies also held a preliminary discussion of the renewal
of the General Arrangements to Borrow, Mr, Daane commented.
The GAB
would expire in October 1966, but renewal was required by October 1965.
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From that discussion it seemed to him that most countries did not plan
to raise quest:.ons about the general structure of the Arrangements.
However, some questions probably would be raised about their duration.
The original GAB had had a four-year term, but some representatives,
including the French, expressed the view that a shorter term, such as
two years, would be more desirable on renewal in light of the studies
under way on means of improving the international payments mechanism.
Mr. Deming indicated that he did not feel there was a link between the
studies and the GAB, and expressed a tentative preference for another
four-year term.
The final item on the agenda, Mr. Daane said, was a report by
Chairman Ossola of the Study Group on Creation of Reserve Assets.
Mr.
Ossola outlined the Group's planned report and indicated that it would
be submitted for study to the Group of Ten Deputies possibly about
June 10 or 12.
Decisions with respect to procedures for handling the
report, as well as with respect to its substance, were left open.
Mr. Ellis asked whether any views had been expressed at the
meetings on the progress of the U.S. balance of payments program.
Mr.
Daane replied there was a feeling that the U.S. program was working,
but the continental countries were mainly interested in the way the
United States viewed it--what effects were expected, how long it would
be carried on, and so forth.
There was very little indication of any
trepidation on their part with regard to its effects on them.
At the
Basle meeting, he (Mr. Daane) had given a cautiously optimistic report
of progress to date which seemed to have been welcomed.
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Chairman Martin noted that the agenda for today's meeting
called for a discussion at this point of the possibility of entering
into swap arrar.gements with Mexico, Venezuela, and Peru.
He pro
posed that the discussion be deferred until a later meeting when
Mr. Mitchell, who originally had suggested the matter for discussion,
would be present.
There were no objections to the Chairman's proposal.
Before this meeting there had been distributed to the members
of the Committee a report from the Manager of the System Open Market
Account covering open market operations in U.S. Government securities
and bankers' acceptances for the period April 13 through May 5, 1965,
and a supplemental report for May 6 through
10, 1965.
Copies of both
reports have been placed in the files of the Committee.
In supplementation of the written reports, Mr. Holmes commented
as follows:
The money market remained generally steady during the
past four weeks, holding firm enough to keep Federal funds
generally at 4-1/8 or 4 per cent and member bank borrowing
around $400-$500 million, while also accommodating a suc
cessful Treasury refunding operation. As in the similar
period of other recent years, the major money market banks
benefited from temporary Treasury redeposits of April 15
tax receipts. However, the money market as a whole did
not ease as it had in similar circumstances in the past,
possibly because of the high rate of reserve utilization
and the smaller cushion of excess reserves in banks out
side the money centers.
System operations provided reserves on balance over
the period, particularly in the latter part when normal
month-end reserve drains were augmented by swap repay
ments and continuing substantial growth in required re
serves. Much of the recent reserve need was met through
short-term repurchase agreements with nonbank dealers.
In this connection the Committee's recent authorization
to permit such agreements against Treasury issues of any
maturity, during periods of Treasury refunding, proved
5/11/65
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particularly helpful. The System's holding of Treasury issues
under repurchase agreements reached a level of $685 million on
May 5--the day that subscription books closed for the Treasury's
refunding. Of this $685 million, some $501 million were against
rights in the refunding and if it were not for the Committee's
new authorization, the repurchase agreements against rights
would have had to be terminated on May 6 to the extent that
dealers turned in those rights for the Treasury's reopened
nine-year bond. The dealers did in fact convert their rights
mainly into bonds and if the Desk had had to cope with massive
repurchase agreement withdrawals a huge offsetting provision
of reserves would have been needed--probably in the form of
outright bill purchases which would have added to downward
pressure on rates. The System also held on May 5 some $11
million of other long-term (i.e., over two-year) issues under
repurchase agreements, as permitted under the revised authoriza
tion. Holdings of Treasury issues under repurchase agreement
declined on May 6, but rose again to $701 million on Friday,
May 7, and still included some $501 million against rights
and $9 million against issues maturing in over two years.
The Treasury refunding was well received by the market
after a bit of initial hesitation, and a useful amount of
debt extension has been achieved. The public subscription
of about $2 billion of the reopened 4-1/4 per cent bonds of
1974 was somewhat more than most market participants had
anticipated. But on the whole the bonds are regarded as
reasonably "well placed." Dealers have a sizable job of
distribution yet to be done, but the mild market reaction
to the large subscriptions to the long bonds indicates that
they are approaching the task with confidence.
Treasury bills have continued in demand during recent
weeks, with normal refunding demands and other seasonal demands
augmented, as indicated in the written reports, by Treasury
account purchases. In yesterday's auction, the three-month
bill rate edged down slightly further to about 3.89 per cent
while the six-month issue was sold at an average rate of
I would see little prospect for higher
about 3.95 per cent.
bill rates on the immediate horizon, given the reduced level
of dealer holdings in the wake of the refunding, and the pos
sibility of some demand being generated by attrition from the
refunding. Dealers are generally cautious, however, at cur
rent rate levels and it may well be that some upward tendency
will develop as the next tax date approaches and as the
period of seasonal Treasury cash needs draws closer.
There is little to add to the written reports by way of
comment on other markets. Tax-exempt issues have been coming
to market in good volume at slightly higher rates than prevailed
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a few months ago. Today, several large issues are reaching
the market, including $100 million State of California bonds.
Corporate bond issues have come to market at rates very close
to those prevailing earlier, but a number of these issues
have been a little sticky in distribution. The sizable over
hang of undistributed bonds in both markets has contributed
to a certain underlying feeling of caution.
In the bankers' acceptance market, dealers' inventories
have declined substantially since dealers raised their rates
1/8 per cent on April 23--partly reflecting particularly
heavy purchases by a major New York City bank. During the
recent period, repurchase agreements in bankers' acceptances
again proved a useful adjunct of open market operations.
As far as third-country acceptances are concerned, we
have distributed a new tabulation dated May 6 showing hold
ings in our portfolio, and propose to distribute similar
(Note:
tabulations at least twice a month in the future.
A copy of this tabulation and of the accompanying memorandum
has been placed in the Committee's files.)
Mr. Swan noted that there had been a good deal of comment about
the demand for Treasury bills by public fund, as one of the factors
leading to relatively low bill rates recently.
demand was expected to continue.
Mr
He asked whether such
Holmes replied that a reversal
was expected; public funds probably would be net sellers of bills in
the period ahead, adding to possible upward rate pressures.
Mr. Robertson asked whether Mr. Holmes planned to supplement
tabulations on third-country acceptances of the type distributed with
a memorandum to the Committee on the desirability and workability of
alternative means of reducing the volume of such acceptances in the
Bank's portfolio.
Mr. Holmes said that personnel of the Bank had held several
discussions of this subject and had concluded that any request to
dealers for a smaller volume of third-country acceptances was likely
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5/11/65
to produce undesirable reactions in the market and to lead to other
problems, as Messrs. Hayes and Treiber had noted at recent meetings.
It seemed preferable to deal with any problems in this connection at
the point where the acceptances were created, rather than in the
secondary market.
Mr. Holmes added that he would have a memorandum
prepared for the Committee outlining the reasoning underlying these
views.
Mr. Balderston asked if Mr. Holmes would analyze briefly for
the Committee the factors that had led the Desk to buy a substantial
volume of Treasury bills on Friday, April 30, after the Treasury had
announced the terms of the current refunding but before the books
were open.
Mr. Holmes said that as he recalled the transactions in
question the System's purchases were made in response to indicated
reserve needs.
At the same time, the Treasury also was buying bills
for its investment accounts.
He thought the Treasury probably was
concerned about the hesitant reception accorded the 4 per cent notes
to be issued, which were priced close to the market.
Although the
System's purchases were made for a different reason, both sets of
operations obviously had effects on the bill market.
Thereupon, upon motion duly made
and seconded, and by unanimous vote,
the open market transactions in Govern
ment securities and bankers' acceptances
during the period April 13 through
May 10, 1965, were approved, ratified,
and confirmed.
Chairman Martin called at this point for the staff economic
and financial reports, supplementing the written reports that had
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been distributed prior to the meeting, copies of which have been placed
in the files of the Committee.
Mr. Noyes made the following statement on economic conditions:
It often seems that the uncertainty which plagues us
when we try to look ahead focuses on a particular period,
and we feel that once that time has passed, many of our
doubts will be resolved.
Early May was such a time this year. Much of the
speculation as to the pattern of economic developments in
1965 emphasized that our foresight was clouded by the pos
sibility that by May 1 we might see either a steel strike,
or an overly generous settlement, with the impact of one
or the other of these alternative possibilities affecting
a wide range of business decisions.
As is almost always the case, the passage of time has
only partially resolved the doubts that concerned us earlier
and has brought its share of new ones. Nevertheless, it
does seem to me that the additional knowledge that we now
possess is favorable, on balance, to the continuing healthy
expansion of the economy. This seems to me to be true
whether one was more concerned about the possibility that
a sharp curtailment of activity in steel would spread to
other lines and precipitate a downturn; or, on the other
hand, that the very rapid pace of the first four months
would set in motion an inflationary spiral, which would be
further aggravated by rising labor costs.
As is suggested at several points in the staff comments
on the questions suggested for discussion today, we are now
moving into a period when demand pressures should be less
intense; that is, demands will be rising less rapidly in
relation to our expanding capacity. At the same time, the
shift now seems likely to be less violent than we feared
earlier, partly because of the nature of the interim
settlement in steel, and partly because capital expenditure
plans are being revised upward. The magnitude of the change
in the outlook can be illustrated very roughly with the
GNP aggregates. Earlier in the year we speculated about
GNP growth in the second quarter only about one-third as
large as in the first--say perhaps something like $5 billion,
as compared to $15 billion. Now the first quarter expansion
looks closer to $14 billion or less, and a gain of $7 billion
or more in the second does not seem unreasonable.
A more favorable view of the outlook along these lines
apparently received nearly unanimous support at the meeting
of the Business Council in Hot Springs last week, where both
the possibility of a downturn and the danger of "overheating"
got short shrift.
5/11/65
-20-
Naturally, as a central banker, one must view all this
optimism with skepticism and, as usual, one can find some
basis for misgivings. While most of the recent rise in
wholesale prices is associated with a recovery in farm
products from unusually depressed levels, the fact remains
that the run-up last summer and fall in prices of sensitive
industrial materials, which was associated at the time with
transitory supply developments, has not yet been reversed.
However, in fairness it would be unreasonable to expect
downward price adjustments to have occurred in the period
when the economy was running under the forced draft of steel
strike anticipations and auto strike make-up. The time
when these prices will really be tested lies just ahead.
The increase in plant and equipment expenditure plans
deserves special mention, but for the short-run,some
further pick-up in this area seems altogether fortunate,
as does the rise in housing starts and building permits.
Retail sales hit an extraordinarily high level in
February and were off a little in March and again in April.
Were it noc for the fact that the February figure was so
obviously out of line on the high side, two consecutive
months of decline in retail sales, in an otherwise booming
economy, might be cause for concern. In the circumstances,
it is hard to regard what has happened so far as other
than a healthy adjustment, especially in the light of the
fact that sales for the week ending May 1 seem to be above
the normal post-Easter pattern.
Unemployment was up a little in April to 4.9 per cent
from the favorable 4.7 per cent in March. Industrial
production probably did not change much in April, as some
seasonally adjusted decline in autos was perhaps a little
more than offset by gains elsewhere. It looks like, if
anything, a stronger performance than might have been
anticipated on top of recent advances.
I am sure it is apparent by this time that I am
straining to find faults in a situation which has generally
developed more favorably than it was reasonable to hope.
To summarize, pressures on resources should ease a
little as we pass through a period of steel inventory
adjustment--and perhaps a lower level of auto demand--but
the chances of an actual decline in overall activity now
seem quite remote. At the same time, the period of maximum
danger of overheating should be behind us for the moment.
Certainly, continued vigilance is needed if monetary
policy is to contribute constructively to another year of
reasonably stable growth on top of the four just passed,
but I see nothing in domestic economic developments which
would suggest that the policies of the Committee thus far
this year have been inappropriate, or that they are in
need of change at this time.
-21-
5/11/65
Mr. Holland made the following statement concerning financial
developments:
This seems to me to be one of those fortunate occasions
when the fog of financial statistics has also lifted a bit,
enabling us to perceive a little better the terrain over
which we have just come, and thereby to judge better current
conditions and prospects.
The most helpful new numbers in this respect are the
just-released flow-of-funds data through the first quarter,
for they let us view the big bank credit bulge this year
against the perspective of broader finncial and economic
developments. When we do so, we see that the bank credit
jump was not simply the most obvious part of a massive
credit upsurge, but rather a powerful competitive enlarge
ment of the banking system's share of a total private credit
flow that actually grew rather less than past relationships
might have suggested.
Ordinarily, periods of vigorous growth in private GNP
such as we had in the first quarter generate--and in turn
are reinforced by--a relatively even more rapid increase
in private borrowing, as individuals and businesses rely
heavily upon external sources of funds to supplement their
own internal resources. In the first quarter of 1965,
however, net funds raised by the domestic nonfinancial
sector expanded just about as much percentagewise as did
GNP itself, and this is true whether one compares these
first quarter results with the preceding quarter or with
the average for the year 1964 as a whole. These data,of
course, have their weaknesses, but they reflect, if anything,
a shade more conservative rather than a more liberal relative
use of external debt by the private sector in financing its
1965 bulge in spending. That run-up in spending had its
destabilizing potential, but it lay more in the type and
concentration of expenditures made than in how they were
financed.
Beyond the first quarter, the available data narrow
down to descriptions of the banking system and little else,
with a corresponding loss of perspective. Nonetheless, one
can see signs of change of pace in banking alone that ought
to be indicative of some redressing of the enlarged bank share
of financial flows that developed late last year. I would
judge three factors to be at work dampening bank credit and
(1) some moderation
deposit expansion after the first quarter:
in demands for financing by bank customers, (2) virtual comple
tion of the public's shifts out of stocks of other financial
assets and into time accounts in response to the attraction of
the latest round of interest rate increases on time deposits;
5/11/65
-22-
and (3) a mild further tightening of bank reserves and
relative liquidity positions, with Federal Reserve policy
chiefly responsible for the former and Treasury debt manage
ment actions contributing to the latter.
The effect of these influences is not shown symmet
rically in our summary banking statistics. This is in
good part oecause a late surge of bank expansion took
place at the very end of March; this rise is captured in
the March data in the end-of-month series used to measure
bank loans and investments, but is largely carried forward
into the April numbers in the average bank deposit series
which is based upon an average of the daily figures through
out each month. On an end-of-month basis, total bank loans
and investments are now estimated to have risen about $1.8
billion during April. This is only about two-thirds as
much as the average for the first three months of 1965,
but still a shade higher than last year's pace. Business
loan growth appeared down from $1.2 billion in March to
$700 million in April. There still exists a vigorous
demand for bank loans by business, however, as attested
by the $300 million rise (not seasonally adjusted) at New
York City reporting banks in the week of May 5. Leading
bankers also seem to be expecting good loan demand, for
prime-name banks are still pushing CD sales quite vigorously,
a source of funds that they have manipulated quite adroitly
this year to capture extra funds to loan to businesses when
needed.
Other than New York City CDs, time deposit growth has
been much slower in March and April than earlier this year,
presumably reflecting the wearing out of the impact effect
of higher time deposit rates. At the same time, the rate
of growth of money supply rebounded in March and April to
a 5 per cent annual rate, and the savings flow at mutual
savings banks seemed to improve a little relative to seasonal
expectations. Presumably the flow of financial savings in
the d:rection of other nonbank intermediaries and direct
market securities has also recovered somewhat in the last
month or so.
This redirected savings flow can represent a needed
cushion for the enlarged supplies of longer-term Federal,
corporate and municipal securities now being brought to
market. A concentration of these supplies in a few brief
weeks, however, does create a potential short-run digestion
problem that leaves the capital markets technically vulner
able to upward interest rate pressures at this juncture.
This is most true of the municipal and U.S. Government
markets, where dealer inventories of longer-term securities
are currently large by historical standards.
-23-
5/11/65
In these circumstances, the "even keel" constraint on
monetary policy might well be construed to extend a few
days beyond the May 17 payment date for the Treasury refund
ing issues, just as sometimes it has been regarded as ending
a few day. before payment date when the refunding issues
were shorter-term, dealer holdings were low, or redistribu
tion to final investors was rapid. Furthermore, after the
"even keel" period is presumed over, it might be deemed wise.
in the light of the more satisfactory economic outlook
described by Mr. Noyes, not to tighten money market conditions
in a way that would compound upward rate pressures in the
longer-term securities markets as dealers try to speed the
redistribution of their current inventories of bonds.
What particular measures of money market and reserve
conditions might fit within the definition of "even keel"
are, of course, matters of judgment on which reasonable men
can differ. The staff's own effort at a consensus in this
respect is expressed in its answer to question 6.
Mr. Daane asked whether there was any evidence of pressure on
banks to raise the prime rate.
Mr. Holland said he had not heard much
talk of increasing the prime rate lately.
There was evidence of some
upward pressure on rates on nonprime loans and on term loans, but
there was no sign, as far as he knew, that banks were poised for an
increase in the prime rate itself.
Mr. Robertson and Mr. Wayne observed that there seemed to be
a tendency to dispense with the prime rate altogether.
Mr. Hayes com
mented that New York banks appeared to be sensitive to the political
implications of any change in the prime rate.
Mr. Hersey then presented the following statement on the
balance of payments:
On the surface, the balance of payments outcome in March
and April can be described as a surplus, without qualifica
tions: a surplus with or without seasonal adjustment, and a
surplus on either the Commerce Department definition or the
"official settlements" definition. But this outcome was
probably heavily influenced by the catching up of exports
5/11/65
-24
after the interruptions of the port strike--as well as by the
sharp reduction that has occurred in outflows of bank credit.
Since the Green Book 1/ was put out, we have gotten the
March export total, and we now have enough weekly information
on the settlement items to allow us to make a fair guess of
the April surplus, which looks like about $200 million before
seasonal adjustment. While this is much less than the sur
plus in March, now revised to $433 million, the difference
seems to reflect mainly seasonal factors. The result in April
was a decline in liabilities to foreign official accounts.
And foreign private balances, which usually tend to rise in
April, failed to increase.
To get around some of the difficulties of guessing month
to-month seasonal changes and irregularities, I will speak
mainly in terms of average monthly figures, comparing the
March-April averages with averages for the five preceding
months, October through February. I will mention seasonal
corrections only when they make an important difference. In
the October to February period, as you know, the monthly
deficits were very large, and were running at a much higher
level than for the year 1964 as a whole. The shift from that
5-month period to March-April, with surpluses suddenly emerg
ing, is very striking.
In round terms, what we have to explain is a change from
an average monthly deficit on the Commerce Department defini
tion of nearly $500 million a month in the preceding five
months to an average monthly surplus of $300 million in March
and April--that is, a shift in level of about $800 million.
On the official settlements basis, the change has been
only about half as much. The difference between the two
measures of improvement--$800 million per month on the standard
calculation, and $400 million on :he official settlements
calculation--is huge, and I will have to come back to that
later.
First we might look at the conventional measure, and
inquire what were the increases in receipts and drops in pay
ments that produced so great an improvement in the position,
and also try to arrive at some judgment as to how much of the
improvement was in some sense or other strictly temporary.
One factor was the reflux of U.S. corporate liquid funds.
From confidential Canadian data, we know of about $400 million
in March. Even if there was no further reflow in April, this
1/ The report "Currency Economic and Financial Conditions,"
prepared by the Board's staff for the Committee.
5/11/65
-25-
would explain $200 million of the monthly average overall
improvement, since the net movement in the preceding 5
months was small. Continued reflows of U.S. liquid funds
at that average pace seem unlikely.
the net out
Two other main elements are involved:
flows of U.S. bank credit, and merchandise trade. In both
cases we have data only through March, but I believe that
reasonable guesses can be made for April.
The part of the overall improvement that was due to
the cut in U.S. bank credit outflow, which was a cut of
about $250 million a month, unadjusted, we do not need to
think of as strictly temporary. If things go well with the
voluntary program, it may be quite a while before the ques
tion of "what next?" will have to be faced in this area.
The:e is every reason to think that April's outflow was
small, like that of March, and no reason to fear any change
for the worse in the near future.
It is very different with the trade surplus. What
happened in March was that unadjusted exports nearly doubled,
approaching $3 billion. Though imports also jumped, exceeding
$2 billion, the statistical trade surplus rose from only $50
million in February to $850 million in March. In the five
months October through February, it had averaged a subnormal
$400 million.
Durirg the port strike, exports had been held back much
more than imports. The catching-up process was in full
swing in March, but there was still a long way to go. In
April the statistical trade surplus can easily have been
about as big as it was in March. By now, in May, there
should begin to be a rather sharp taper.ng off in exports,
and by June we ought to be back to a new normal trade sur
plus.
We will have to wait till July or August for statistics
that will allow us to make a judgment of what the new normal
level is.
In the meantime, a guess in the range of $500 to
$600 million a month seems plausible, and allows us to say
that of March's $850 million trade surplus, we may have to
count as strictly temporary an excess over normal of some
$300 million; and something like the same will doubtless
apply to April. Furthermore, actual net receipts must have
been abnormally large; I find it implausible to suppose that
any great amount of the delayed exports had already been paid
for. If, then, we take out this strictly temporary element
in the trade picture, the balance of payments on the conven
tional basis was not in surplus by anything like $300 million
a month in March and April and may even have been in deficit.
I want to come back now to the question of why the change
in the official settlements deficit since the period around
the turn of the year has been so much less encouraging than
the improvement in the conventional balance. In fact, when
5/11/65
-26-
we make a correction for the abnormal trade situation, the
change looks very moderate indeed.
What has happened is this.
In 1964 foreign private
holders, especially commercial banks abroad, were building
up their holdings of dollars in the United States--by $1-1/2
billion for the year as a whole. In March and April of this
year, however, foreign private balances in the United States
appear to have declined by about $250 million. Usually in
April there is an increase, sometimes exceeding the usual
March decline. This year, there was a sizable draw-down
in March, associated with the return flow of U.S. corporate
liquid funds from Canada. But our tentative figures indicate
that the normal April build-up of foreign private balances
failed to develop.
Now you will recall that during the year 1964, the
official settlements deficit was $1-1/2 billion, while the
conventional deficit was $3 billion, the difference
representing the build-up of foreign commercial bank and
other private balances. Around the turn of the year, in
the October-to-February period, the monthly average deficit
on the official settlements basis, seasonally adjusted, was
heavy, about $300 million a month. The conventional deficit
was heavier still, averaging $500 million a month. In
March and April, however, the relationship was completely
reversed. The official settlements balance was now a sur
plus of about $100 million (this allows for some seasonal
correction but none for the trade abnormality). The
conventional balance, instead of looking the less favor
able of the two as it had before, was an even larger sur
plus, averaging $300 million a month.
In principle, one can't say that either of the two
measurements is wrong. Both can be "right," because each
measures a different thing. It is important that we under
stand clearly what we are measuring with either. The
large apparent improvement in the U.S. payments situation
shown by the standard calculation represents the effects
of the export catch-up, plus the effects of the cutback
in bank lending, plus the reflux of corporate liquid funds,
plus other changes in current transactions and in U.S.
capital outflow, but does not count as an adverse factor
the apparent shift in the movement of foreign private
balances from an inflow to an outflow. At a time when
our concern is to halt the accretions of foreign official
reserves in order to stop the gold outflow, we need to
keep watching all the elements of the situation. One of
the elements to watch is the movement of private foreign
balances. Perhaps because of the drop in U.S. capital
outflow, perhaps also as an effect of the temporarily
high level of our exports, foreign commercial bank
5/11/65
-27-
balances in the United States have appa:ently been tending
to fall in the past two months.
Our measures to reduce U.S. capital outflow are thus
not immediately exerting their full force on foreign official
reserves. This does not mean they are useless. The Gore
Amendment and the voluntary program for the banks have
made a very important change in the situation. Perhaps
it was inevitable that last year's build-up of foreign com
mercial bank balances would slow down greatly this year.
If so, the official settlements balance might have increased
very sharply in the absence of the new measures. The new
measures seem to be accomplishing what could be expected of
them. The question remains, whether that is enough.
Mr. Hayes commented that he had found Mr. Hersey's explanation
of the differences between the balance of payments figures on the two
bases of measurement to be lucid and interesting.
He felt that it was
vital for the Committee to keep the figures on both bases in view,
rather than concentrating on one to the exclusion of the other.
Prior to this meeting the staff had prepared and distributed
certain questions suggested for consideration by the Committee, and
comments thereon.
These materials were as follows:
(1) Business activity--What does the extension of the steel
wage contract suggest as to the near-term outlook for indus
trial activity, inventories, and prices"
The interim steel agreement has had a stabilizing
influence on the near-term outlook. Had settlement
of a new steel contract been reached by May 1, steel
production probably would be declining sharply now,
as it did in 1962 and 1963, while steel consumers
were using up excess stocks accumulated as a strike
hedge. The interim agreement offers an opportunity
for a more orderly adjustment of steel production to
final consumption rates. At the same time, the terms
of the agreement, and the range of the differences
between the union and the companies, suggest that the
final settlement is not likely to involve excessive
wage and price increases in steel--or in other sectors
of the economy where labor settlements in the past
have tended to follow the steel pattern.
5/11/65
-28It is too early to tell how promptly steel
inventories will level off or decline. The threat
of a steel strike on or after September 1 continues
to be a source of some uncertainty, Production is
high, and is expected to decline only moderately
over the next month or so, even if shipments fall as
is expected. Some further increase in steel stocks
is likely up to midyear, but at a rate substantially
lower than in recent months. The impact of the
settlement, therefore, on the near-term outlook for
overall economic activity may show mainly in a
reduced rate of inventory accumulation without
significant repercussions outside the steel indus
try.
There is no evidence a, yet that the 2.6 per
cent wage increase provided in the interim agree
ment will give rise to any appreciable steel price
increases. Since 1962, labor costs per ton of
steel have been declining. The steel wage increase
is well below that granted in the earlier auto
settlement, and less than the average rise in manu
facturing or the increases provided in the recent
can and rubber pacts. Current negotiations in
the aluminum industry, and those coming up prior
to September 1 in aircraft and shipbuilding, are
not expected to produce any breakthrough in the
general pattern of recent wage trends.
Even though wage cost increases have on the
average been maintained within the economy-wide
rate of gain in productivity, some selective
price increases may, nevertheless, follow contract
settlements. For example, the can industry raised
prices by 1 per cent, and some increases have been
reported in tire prices. Over all, however, the
industrial price level has edged up only slightly
so far this year.
(2) Capital spending--What are the implications for sustained
economic activity of the higher levels of capital spending
now being projected by businessmen?
The higher levels of business fixed-capital
spending now being projected for 1965 strengthen
prospects for continued economic expansion through
out the year. Results of the McGraw-Hill survey
conducted in March-early April indicate a rise in
capital spending from the fourth quarter of 1964
to the fourth quarter of 1965 of about 13 per cent,
5/11/65
-29substantially above the 7.5 per cent gain projected
earlier and not far below the large increase (16
per cent) posted over the preceding four-quarter
period. The raising of business investment sights
provides some offset to the expected slackening in
the pace of inventory investment.
Pressures on capacity appear to be a major
influence contributing to this year's large planned
increases in capital spending. According to the
McGraw-Hill report, manufacturers will place much
greater emphasis on capacity expansion this year
than in the preceding five years. Manufacturers
reported that on average they were operating at
88 per cent of capacity at the end of 1964, and
nearly one-third were operating at or above pre
ferred capacity utilization rates. Further expan
sion in factory output in the first quarter prob
ably brought the average capacity utilization rate
to 90 per cent, a factor undoubtedly contributing
to the recent step-up of investment plans. Manu
facturers now plan to expand capacity by 6 per
cent this year, as compared with their stated in
crease of 4 per cent last year. The prospective
large increase in capacity is an encouraging
element in the outlook for price stability.
(3) Balance of payments--How do the major types of capital
flows in the U.S. balance of payments appear to be responding
to the program of voluntary restraint?
Judgments about program effects are necessarily
still tentative, but the partial information, statis
tical and other, available on developments since
February 10 is moderately encouraging. As noted
below, significant declines have occurred in out
flows of long-term and short-term bank credit.
There have been some further term-loan com
mitments by banks to borrowers subject to the IET
since the Gore Amendment went into effect, but
through April these apparently amounted to less
than $60 million. Commitments to borrowers in the
less developed countries were large, amounting to
about $200 million in this two-and-a-half month
period, with the greater part in March and signif
icantly less in April. On an annual rate basis,
commitments to the less developed countries were
about equal to their 1964 average, though much
less than their rate in the latter part of 1964
and first six weeks of 1965. In contrast, the flow
5/11/65
-30of new commitments to industrial countries was
reduced to roughly one-fourth of its 1964 rate.
The actual net outflow of long-term bank credit
during March (revised preliminary data from the
Treasury's Form B-3) was $43 million--an annual
rate (without seasonal correction) of about $0.5
billion, or about one-half the rate in the year
1964. The outflow in April may have been at least
as gceat as in March, since it is known that one
very large individual loan committed in March was
scheduled for disbursement in April.
Tentative indications (inferred from the Federal
Reserve Form 391) are that net bank-reported short
term outflows in March were much less than the $100
million shown in the Green Book, and possibly close
to zero. If the figure turns out to be at this
lower level, it would represent a drop of about
$100 million from the average of the five preceding
months. The corresponding drop in 1964 was $54
million. It seems clear that a significant decline
has occurred from the rates of these short-term
outflows experienced earlier--$1.5 billion in the
year 1964 as a whole, and somewhat under a $1 bil
lion annual rate in the five months from October
through February.
For direct investment outflows, preliminary
quantitative information covering the first quarter
will not be available until June. The Department
of Commerce has been obtaining single-figure estimates
from large corporations with foreign subsidiaries and
branches of the planned change between 1964 and 1965
in each company's own "balance of payments" (includ
ing its exports to all areas as well as its investment
income from and capital outflow to industrial countries,
but not including its imports). Assistant Secretary
Brimmer stated in a recent speech that these reports
indicate a planned $1.2 billion improvement in 1965,
occurring principally through export expansion rather
than curtailment of new investment.
The remaining major types of identifiable capital
flows in the U.S. balance of payments are securities
transactions and movements of liquid funds. Securities
transactions are affected by the IET where it is
applicable, and the program of voluntary restraint
for nonbank financial institutions may possibly have
some influence on them. However, the sharp drop in
purchases of new foreign securities (seasonally ad
justed) from $600 million in the fourth quarter of
1964 to about $300 million in the first quarter of
5/11/65
-311965 is unrelated to the program, and represents
largely the ending of a temporary bulge in Canadian
new issues in the United States.
With respect to U.S. corporate liquid funds,
the only sizable inflows since mid-February thus far
identified are from Canada. Confidential Canadian
data show a decline in March in their banks' U.S.
dollar liabilities to others than banks in the
United States of $375 million. In turn, Canadian
banks reduced holdings with their agencies in New
York in March by about $320 million. Both of these
movements were in good part seasonal.
The reflux of U.S. funds from Canada benefits
the U.S. balance of payments as presently computed.
However, this reflux is offset by the decline in
Canadian bank holdings of U.S. dollars in New York
if the balance is calculated on an "official settle
ments" basis.
(4) Savings flows--What are the implications of the recent
abatement in time deposit growth for the overall volume and
composition of funds being supplied to credit markets?
Rapid growth of commercial bank time deposits early
in 1965 resulted mainly from shifts among existing
stocks of financial assets in response to increases in
rates on savings deposits and CDs, rather than from a
growth in total financial saving. Net acquisitions of
all types of financial assets by consumers and corpora
tions together increased only marginally in the first
quarter, according to preliminary flow-of-funds estimates.
Shifts in asset preferences were reflected in reduced
demands for money balances, for claims against nonbank
intermediaries (especially savings and loan shares), and
also for market securities.
The large first-quarter increase in time deposits,
together with the rise in Treasury balances at commercial
banks, permitted an enlargement of funds supplied by
the banking system at a time of strong demands for credit.
Credit demands were heavily concentrated in categories of
financing--such as business loans and consumer creditin which banks participate most actively. Since last fall
banks have been able to finance a large customer loan
expansion and to increase their purchases of municipal
securities without heavy liquidation of Treasury issues.
In both the last quarter of 1964 and the first quarter
of 1965 the share of total funds supplied by commercial
banks was higher than in the first three quarters of 1964.
5/11/65
-32Slower growth of time deposits during March and
April seems principally to have reflected the comple
tion of the adjustment to the higher level of interest
rates mentioned earlier. To some extent, however, it
probably also reflected larger-than-usual deposit
withdrawals for payment of individual income taxes
in those two months. Barring further changes in
interest rate relationships, the pace of time deposit
expansion in the months ahead should continue to be
less rapid than in January and February.
Continued growth in economic activity and a likely
rise in the ratio of financial saving to income from
the rather low first-quarter level probably will in
crease the volume of total financial saving considerably
in the second and third quarters. With slower growth
of time deposits expected, the share of the enlarged
total savings flow channeled through the banking
system should be significantly smaller in the coming
months than it was during the first quarter.
(5) Bank credit--What do recent developments suggest as to the
pace of business demands for bank credit?
After rising rapidly in the first quarter, growth
in business loans at all commercial banks moderated in
April, with the abatement of some temporary stimulating
factors. Indications are that business loan demands
over the next few months will remain relatively strong,
but will expand considerably less rapidly than in the
first quarter of this year.
The moderation of business loans in April reflected
the continued unwinding of temporary factors that raised
bank lending so sharply earlier in the year. There was,
for example, more than seasonal repayment of the commodity
dealer loans built up during the dock strike. In addi
tion, there was probably further abatement of foreign
lending as commitments were cleaned up in line with the
voluntary credit restraint program.
Continued steel stockpiling in anticipation of a
May 1 shutdown, on the other hand, led to a strong
contraseasonal increase in borrowings by the metal and
metal products industries. April business loans were
also probably increased somewhat by the over $500 mil
lion of additional corporate tax payments under the
revised tax payment schedule.
Beneath the cross-currents induced by these
temporary factors a basically strong underlying loan
demand is evident. Loan demands in April were partic
ularly strong in miscellaneous manufacturing and mining
5/11/65
-33and construction, and also showed some strength in trade
and textiles. A further sharp increase in business loans
took place at New York and Chicago banks in the first
week of May.
The industrial distribution of business borrowing
thus far in 1965 suggests that bank loans have been
used to finance growth in capital spending as well as
working capital needs. The impression that recent
financing needs of firms have been partly of a long
run nature is reinforced by the increase in the ratio
of term loans to total loans to a record high in New
York City. Upward revisions of plans for plant and
equipment spending implied by the recent McGraw-Hill
survey, together with the continuing need for some
inventory financing, suggest that business loan expan
sion will continue vigorous over the next few months,
but probably less so than in the first quarter of the
year.
(6) Money market relationships--Assuming a continuation of current
monetary policy and taking into account the Treasury refunding,
what range of money market conditions, interest rates, reserve
availability, and reserve utilization by the banking system might
prove mutually consistent during coming weeks?
Market activity associated with the current Treasury
financing has produced some slight further reduction of
bill yields relative to other money market rates. The
financing stimulated additional demand for bills from
holders of "rights," and this demand was supplemented by
official bill purchases in the market in the last state
ment week totaling about $650 million (about two-thirds
of which was for Treasury accounts). Under these condi
tions the yields on 3- and 6-.:,onth bills declined to
trading levels of around 3.90 and 3.96 per cent, respec
tively, despite continued tautness in the Federal funds
market and the maintenance of relatively high rates on
negotiable CDs, bankers' acceptances, and dealer loans.
Net borrowed reserves of banks in recent weeks
have been close to $100 million, somewhat below the
average in late March and the first half of April. Bor
rowings have varied in a wider range, as is usual, but
the $465 million average for the last three weeks was
only slightly below the preceding 3-week period. In
addition to the relatively high level of member bank
borrowing, nonborrowed reserves increased rapidly in
April, as Government deposits rose sharply and private
demand deposit expansion continued brisk. The money
supply rose at a 5.3 per cent annual rate, and the
5/11/65
-34demand deposit component at a 5.8 per cent rate. Time
deposit growth, however, slackened further last month.
In coming weeks, conflicting pressures will be at
work in the money markets. Downward pressure on bill
yields will be exerted by the unusually low current
level of short-term bills in dealers' inventories and
by the reinvestment demand resulting from attrition
in the current refunding. Upward pressure will come
from cessation of heavy bill purchases by sellers of
"rights" and by official accounts, from expected
redistribution of reserves away from money centers,
and from continuation of vigorous bank loan demand.
On balance, it seems likely that net borrowed reserves
in the $100-$150 million range would be associated
with some modest net upward pressure on bill yields.
In this environment, yields on 3-month bills would be
likely to rise above 3.90 per cent again, while other
sensitive money market indicators, such as rates on
Federal funds and dealer loans, should continue firm.
Private demand deposits may continue to rise
fairly rapidly in the next few weeks, particularly
if there is a shift of balances out of Treasury
accounts. The yield structure specified above is
not likely to generate deposits through encouragement
of bank acquisitions of bills and other money market
instruments. On the other hand, economic expansion
is adding to transaction needs for money, and under
the reserve and market conditions specified, demand
deposit growth appears likely to continue at a rate
averaging perhaps around 4 per cent in the next few
months.
The immediate outlook for longer term interest
rates is greatly dependent upon dealers' success in
retailing their more than $500 million awards of the
reopened 4-1/4's of 1974. This is a larger position
in the 4-1/4's, by almost $100 million, than they
took when the same issue was offered at this time
last year, and dealers' total position in over-5-year
issues is now about $500 million above last year.
Also, financing costs are now much closer to the
4-1/4 per cent coupon than last year. If dealers
encounter difficulty in distributing their holdings
of the 4-1/4's, long-term markets may be vulnerable
to some upward interest rate pressures. Also
contributing to this vulnerability is the relatively
full calendar of corporate and tax-exempt bond
offerings, and the continuing heavy dealer inventories
of the latter. Nevertheless, investor confidence in
5/11/65
-35current market rate levels is shown by the sizable
($2 billion) public exchange for the 4-1/4's in the
Treasury refunding.
Chairman Martin next called for the go-around of comments and
views on economic conditions and monetary policy, beginning with
Mr. Hayes, who made the following statement:
Business activity. The business situation is strong,
and there continue to be confirming signs that the outlook
for the balance of the year is brighter than was thought
likely several months ago. The postponement of the strike
deadline in the steel industry should lead to some downward
adjustment in production in that industry, but not so much
as might have occurred if a final settlement had been reachedsome users will doubtless continue to build up stockpiles.
After we make due allowance for some upward bias in the
McGraw-Hil: survey of business spending on plant and equip
ment, the latest survey still suggests that the advance
during 1965 is likely to exceed earlier expectations.
High levels of capacity utilization and of corporate profits
and cash flows provide a firm backing for expanded capital
spending. It is also good to note accumulating evidence that
residential construction activity is bottoming out. These
and other data raise the possibility that overall economic
activity will show both a higher level and a steeper growth
rate than seemed probable a few months ago.
Prices. While the terms of the ultimate steel settle
ment are of course a continuing major urcertainty, there is
some ground for encouragement in the mocerate nature of the
interim agreement and, with respect to industry in general,
in the tendency for wage settlements so far this year to be
about in line with the guideposts. However, I find cause
for concern in the fact that producers in several areas
continue to test markets with higher prices, in some cases
successfully, as evidenced most recently by the price in
creases for copper and tires (and, I might add, aluminum)
and by the mild upward drift in raw commodity prices and
industrial wholesale prices. Even if various upcoming
labor negotiations are settled on reasonable terms, they
may offer an excuse for higher prices in the present
buoyant business atmosphere. Fortunately, there still is
little evidence that upward price pressures are substantial
enought to be having any appreciable effect on business
men's inventory decisions--but we must keep a close eye on
this area for possible adverse tendencies in the coming months.
5/11/65
-36-
Balance of payments. The President's balance of pay
ments program has been an important factor in the sharp
improvement in the balance of payments figures in March
and April. It has contributed to a large-scale repatriation
of short-term funds from abroad and is responsible for
keeping the rise in outstanding bank loans to relatively
moderate proportions. An analysis of the performance of
Second District banks reveals that they have made a
determined effort to comply with the guidelines. In the
corporate sector the program's principal effect appears
to have been the repatriation of short-term funds. I am
troubled by the fact that we have had no indications of sig
nificant deferments or cancellations of direct investment
projects in the sensitive Common Market area. Besides the
effects of the President's program, there were two other
significant factors behind the recent payments improvement.
As usual, U.S. corporations repatriated large amounts in
March to meet regular tax and dividend needs; and the end
of the dock strike in early March led to a very sharp rise
in exports and in our export surplus.
Although the balance of payments outlook for the second
quarter is clearly favorable, it would be very unwise to let
this lead to any feeling of complacency over the payments
problem. Since the President's program represents a temporary
line of attack designed to give time for more basic improve
ments, we must do all we can over the ccming year or so
to contribute to that basic betternent.
Bank credit and money. Following the record bank credit
expansion of the first quarter, at an annual rate of nearly
13 per cent, the preliminary estimates for April suggest
tentatively a reversion to a growth rate about in line with
that of the past few years--a rate which has appeared gen
erous and perhaps excessive in relation to the real growth
of the economy. Loans continue to account for most of the
total bank credit increase, and business loans remain strong.
Total reserves and required reserves grew in April at a
rate exceeding even the substantial pace of the first quarterbut the April figures were almost certainly influenced by a
change in the mix of the deposit expansion. This change in
mix probably reflects largely the completion of adjustments
to the late-November Regulation Q liberalization. The
annual rate of growth of the money supply and time deposits
combined in the first four months of 1965 was 8.6 per cent,
well above the 6.1 per cent for the corresponding period of
1964. Whereas some of this steep gain had earlier seemed
to reflect the strengthened competitive position of the
commercial banks--in the credit market because of the
unchanged prime rate, and in the deposit market because
-37-
5/11/65
of the change in Regulation Q--it is interesting to note
that the public's total nonbank liquid assets grew in the
first quarter at a rate of 8.6 per cent, i.e., in effect
just as rapidly as money supply and time deposits combined.
Monetary policy. It would seem appropriate to try
to maintain even keel conditions in the money market during
the coming two weeks, since the new Treasury securities
will not be delivered until next Monday, and particularly
in view of the heavy subscription to the longer 4-1/4s,
which may make for a relatively sensitive "after-market."
Thus I believe monetary policy should not be changed in the
period in question. Because of significant temporary
influences in the bill market, we probably must resign
ourselves to continuance, for a time, of the current
relatively low level of bill rates, even though net
borrowed reserves are maintained in the $100-200 million
range. No change in the directive is needed at this
time, apart from an updating of the reference to the
Treasury financing. The draft directive prepared by the
staff appears acceptable, with a slight change in the
wording of the statement with respect to the balance of
payments. 1/ In place of the phrase of the first sentence
which reads "and some apparent improvement in our inter
national payments position," I would suggest "and a
beginning toward improvement in the U.S. international
balance of payments."
Looking a little further ahead, I think it likely
that we shall have to take some further steps to check
the recent growth of bank credit. A slower pace would
clearly be desirable in view of the latent price threat
and the over-riding importance of improving our inter
national payments position. Some further tightening
would seem to carry little risk in view of the evident
very considerable strength of the economy.
Mr. Shuford remarked that, as had been fully pointed out this
morning, from all indications the domestic economy was continuing a
strong and widely-based expansion.
Recent surveys suggested no
reversals in the immediate future and, for the present, the interim
steel settlement had avoided a strike and its accompanying adverse
economic effects.
1/
The draft directive is appended to these minutes as Attachment A.
5/11/65
-38
Economic activity in the Eighth District had generally kept
pace with the national advance, Mr. Shuford said.
Measures of
production, employment, spending, and bank credit had all risen
markedly since last fall, although there had been some slowing in
recent weeks.
While there still was little evidence that price movements
had departed from the patterns of the past several years, there was
some indication of increases and Mr. Shuford was inclined to believe
that the economy might be approaching a point at which significant
price increases were imminent.
In his judgment the Committee should
be prepared to foster a moderating monetary environment if excessive
demand appeared.
With respect to the international situation, while basic
problems remained, the most recent data suggested some moderate im
provements to Mr. Shuford.
The voluntary credit restraint program
had been reasonably effective; whether the iprovements would continue
or could be maintained, of course, remained to be seen.
Mr. Shuford noted that the strong demands being generated
by the domestic economy had tightened financial conditions somewhat
since last autumn.
The structure of interest rates had moved up more
in the five-month period from November to April than it had in the
preceding year.
The increase occurred despite seasonal forces tending
to push interest rates down.
The money supply had expanded 3.6 per
cent in the year ending last November and, according to weekly data,
the average growth in money had continued at a rate near that from
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5/11/65
November to date.
Although the rise in bank credit, particularly
loans, had accelerated in recent months, part of that rise probably
represented an expansion in the banking system's share of credit
rather than net additions to credit in the economy.
On considering those factors--the strength in the domestic
economy, reasonable price stability, and the absence of a compelling
reason to take restrictive actions on account of international
considerations--and in view of the Treasury financing, Mr. Shuford
favored no change in policy today.
In this connection he noted
that the Committee would meet again in two weeks.
The staff's draft
directive was acceptable to him.
Mr. Bryan reported that the performance of the Sixth District
economy seemed to be good by the usual statistical measures.
In
fact, on the basis of employment in particular and some other measures,
the District was doing better than the nation.
The one development
that gave him some concern was that the value of new construction
contracts in the District had been a sixth less during the first
quarter than a year ago.
Mr. Bryan said he had little comment on the staff questions.
Postponement of the steel strike, under the announced terms, seemed to
him to set a minimum for the prospective settlement, and probably
more could be expected.
It allowed more time for steel stockpiling,
and for a developing hedging against the expectation of selective
price increases.
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5/11/65
Capital spending plans were encouraging and all to the good,
Mr. Bryan remarked, subject only to the recognition that capital
plans, until they were far committed with cash outlays, were subject
to rapid cancellation.
There was nothing in the Sixth District in
the way of hard facts that gave an independent judgment on the
balance of payments figures or on the voluntary credit restraint
program.
His opinion was simply that it was undoubtedly having a
favorable effect; but other factors were having an unfavorable effect,
and the net balance of forces was unclear at the moment.
On the
savings question, he would merely note that of the gains in savings
accruing to commercial banks in the first quarter not all had been
at the expense of the savings and loan associations and mutual savings
banks.
The tine deposit growth, therefore, was in part "for real."
While this savings growth rate in commercial banks was now coming
down out of orbit, the savings flows outside the commercial banks
were again picking up.
As Mr. Bryan looked at the figures, except for the Federal
funds rate, the behavior of other money market rates had been es
sentially easy.
Longer rates had been easy to steady.
again draw attention to the growth in reserves.
March (seasonally adjusted at an annual rate),
He would
From January through
total reserves had
gone up by more than 9 per cent, nonborrowed reserves by just under
6 per cent, and total required reserves by 8 per cent.
Under those
circumstances he could do no more than repeat the suggestion he had
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5/11/65
made heretofore--if the Committee was going to give instructions
essentially in terms of free reserves, its target should move further
into a net borrowed reserve figure.
As soon as the Treasury refund
ing was out of the way, Mr. Bryan thought the Committee should move
toward a $150 million target rather than the figure of $100 million
that had been characteristic of recent weeks.
Mr. Bryan believed it was clear that the Committee had to
halt what he regarded as a completely excessive reserve expansion.
He took no comfort in the behavior of prices.
He thought the System
would need to make its discount rate effective by keeping the banks,
in the absence of untoward developments in the money market and
money market rates, more heavily in debt at the discount window than
He advocated no change
had generally been the case in recent weeks.
in the discount rate at this time.
Some change in the directive seemed
desirable, but he had no specific suggestiors.
Mr. Hilkert observed that economic advances had been common
for over a year now in the Third District.
Recently--since December-
those advances ceased in a number of the District's major economic
areas, but since March the tempo had picked up again.
Unemployment
rates again had stabilized or had begun to drop; output was increas
ing; and store sales were strong, but as usual were not keeping up
with national increases.
Unemployment claims remained at very favorable levels relative
to similar periods of recent years both in Pennsylvania and Delaware,
5/11/65
-42
Mr. Hilkert said.
Unemployment rates (insured rates, seasonally
adjusted) were down or stable in April in all but one major labor
market.
Electric power consumption by manufacturing industries in
the District retained an unusually favorable position relative to
national output measures, and increases in manufacturing employment
confirmed the strength in output.
Capital spending plans in the District, as in the nation, had
been raised substantially since earlier estimates, Mr. Hilkert con
tinued.
Manufacturers in the Philadelphia Metropolitan Area now
planned to spend $526 million on plant and equipment in 1965.
That
represented an upward revision of nearly 17 per cent since previous
estimates made in October 1964, and, if realized, would be an increase
in capital expenditures of almost 35 per cent over last year's figures.
Most other areas in the District also showed sizable upward revisions.
This spring's findings for the Philadelphia Metropolitan Area con
tinued an upward trend which began in 1962.
Since then, Philadelphia
manufacturers each spring had raised their fall estimates, and also
had increased the actual amount spent on plant and equipment each year.
On the financial front, Mr. Hilkert reported that business
loans in the District had lagged behind those in the nation.
Since
the beginning of the year, for example, business loans at District
weekly reporting member banks had increased by less than 1 per cent,
while national business loans were up by almost 6 per cent.
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5/11/65
As for the steel outlook, Mr. Hilkert continued, a brief dis
cussion with the largest producer in the District revealed that that
company's shipments since the contract extension agreement were less
than in other recent months, but only slightly so, and that there had
been very few order cancellations.
That producer expected orders to
pick up in August, with the pickup perhaps related more to anticipa
tions of risirg prices than to anticipations of a strike.
Mr. Hickman said that events of the past few weeks had altered
his appraisal of the near-term outlook for business only with respect
to timing.
Thus, in response to the staff's first question, the interim
steel contract suggested to him the following changes in the outlook:
(1) improved prospects for steel production, possibly through August,
which would contribute to a larger total tonnage for 1965 than had been
previously thought likely;
(2) deferral and enlargement of the inventory
liquidation to come when final settlement was reached; and (3) a possible
carry-over of the steel adjustment problem late into 1966.
In view of a continued, but slackening, rate of inventory accumula
tion of steel, Mr. Hickman continued, the iron and steel component of the
production index would probably change little in months immediately ahead.
At the same time, the auto component, although continuing at high levels,
would probably trend slightly downward.
When the steel liquidation phase
began, it might be expected to exert a drag on the production index of as
much as 1-1/2 points from current levels, stretched over a period of six
to nine months.
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5/11/65
So far as the steel wage-price question was concerned, Mr.
Hickman believed that the final settlement would be close to the
guidelines on the wage side and would not involve a general steel
price increase.
While "selective" advances in isolated product lines
were possible, they were unlikely to hit the big-tonnage items of the
flat-rolled group, where product differentiation was minimal.
Recently,
there seemed to have been a renewed flurry of price increases in other
industrial items, including aluminum, copper, tires, and trucks.
While
the weights of those items were small in the broad price averages,
upward movement was again discernible in the diffusion indexes, which
suggested the reed for continuing close attention to price developments.
With reference to the staff's second question, Mr. Hickman said,
the expected continuation of strong forward movement in capital spending
this year was all the more important because of developments to which
he had just referred.
Also, the Cleveland Reserve Bank's spring survey
of capital spending plans in the Cleveland area showed a substantial
gain for 1965 over 1964, like the Philadelphia plans reported by Mr.
Hilkert.
year.
The improvement was concentrated in the second half of the
In addition, he noted that the McGraw-Hill survey suggested
continued strength in capital spending next year.
Such strength might
be crucial for the economy in light of the presently expected additional
fiscal drag in early 1966, resulting from higher social security taxes,
if not corrected by appropriate adjustments in timing of tax payments.
In regard to the balance of payments situation, Mr. Hickman
remarked that there was very little that could be added to the staff's
5/11/65
-45
comments in the green book.
It was gratifying that banks and corpora
tions were apparently responding favorably to the voluntary credit
restraint program.
While reports from Fourth District banks suggested
some difficulty in meeting the guidelines, there were indications of
progress, and it was only a matter of time before appropriate adjust
ments were made.
Reports from large District corporations confirmed
that efforts were being made to cooperate with the President's program.
On the matters of savings flows and bank credit (questions 4
and 5), Mr. Hickman commented that the recent abatement in the growth
of time deposits should have only a limited effect on the volume of
credit available for investment.
Against the background of System
policy and relatively large savings flows, there should be little dif
ficulty in meeting demands for credit, short of an unexpectedly large
run-up in capital spending.
Special factors that sparked a marked
expansion in business loans earlier this year had passed, except that
the deferral of the steel adjustment might extend business borrowing
in that area temporarily.
Insofar as policy over the next two weeks was concerned, Mr.
Hickman thought that the Committee had no alternative, given the cur
rent Treasury refinancing operation, but to maintain an even keel with
in the policy directive adopted at the last meeting (or the one recom
mended by the staff for this meeting, since the two were substantially
the same).
Since such a directive would call for no change in money
market conditions, he again recommended a bill rate in the range of
3.95-4.05 per cent, borrowings above $400 million on average, and net
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5/11/65
borrowed reserves at whatever level was required to maintain those
objectives--within, say, a range of $50 to $150 million.
Since the
91-day bill rate had been somewhat below the desired range, and since
covered differentials were moving slightly against the United States,
he would like to see the Treasury either issue a strip of bills or
add to the existing supply of bills through the regular weekly auction,
if and when such action was feasible.
Mr. Maisel said he had nothing to add to the staff materials
and preceding comments of members nor did he have any changes to pro
pose in the directive.
Mr. Daane remarked that he had little to add to what had been
said.
He agreed that the securities issued in the Treasury financing
still had to be fully digested, and that an even keel policy therefore
was called for until the Committee met again in two weeks.
With regard
to the balance of payments reference in the directive, he thought it
would be desirable to avoid the evaluations implicit both in the use
of the word "apparent" to qualify "improvement"
as proposed by the
staff and in the alternative phrase that Mr. Hayes had suggested.
Moreover, he would not favor another minor change proposed by the stafffrom the "balance of payments" to "payments position"--particularly since
the Committee presumably would not change its policy today.
purpose in changing words for the sake of change itself.
He saw no
Accordingly,
he recommended that the phrase read "and some improvement in our inter
national balance of payments."
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5/11/65
Mr. Shepardson said that he also had little to add.
He thought
the staff reports indicated a generally favorable economic situation,
although he was concerned that too optimistic an attitude was taken
with respect to some indicators.
He shared the concern Mr. Bryan had
expressed; the recent rate of credit expansion was very high and in his
judgment the Committee should be looking toward some tempering of that
rate.
In view of the Treasury financing, he agreed that it was appropriate
for the Committee to make no change in policy during the coming two weeks,
but he hoped that the Committee might be able to move to a little lower
rate of credit expansion subsequently.
With regard to the directive, Mr. Shepardson shared Mr. Daane's
view that the word "apparent" should be omitted from the reference to
the balance of payments improvement.
He also questioned the proposed
insertion of the word "further" before "growth in the reserve base,
bank credit, and the money supply."
The addition of that word implied
to him that higher growth rates were desired; if anything the Committee
should be leaning toward lower rates of growth.
Accordingly, he would
omit the word "further."
Mr. Robertson then made the following statement:
It seems to me that the weight of the evidence before
us this morning calls for no change in monetary policy dur
ing the next two weeks.
With regard to the business situation, I find my view
neatly summed up by the first sentence appearing in the
Green Book, which says: "Changes reported in the domestic
economic scene since early March have been of a kind generally
conducive to further expansion in activity over the near-term
without widespread price advances." A moderate slowing down
in the pace of business expansion is taking place, but for
reasons that do not call for a prompt response on the part
of monetary policy.
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5/11/65
On the financial side, too, some signs of moderation
and readjustment are showing. Bank loan demand is not
so unremittingly strong, and the latest money supply and
time deposit figures seem to be explainable as readjust
ments from their unusual January-February performance.
Bill rates have drifted down a bit in connection with the
Treasury refunding, and I am not happy about the extent
to which that may have been deliberately brought about
by heavy official purchases of bills instigated by the
Treasury for purposes of sweetening the refunding. But
I am not concerned about the lower level of the three
month bill rate per se. I think fluctuations in yields,
dowrward .as well as upward, ought to be expected and
allowed to occur as part of the regular functioning of
the market. In addition, I do not believe this, or even
an appreciably lower, bill rate would constitute any
threat to the balance of payments improvement we are
seeking to achieve. Short-term interest-sensitive fund
flows seem to be fairly well in hand and we should con
centrate our general economic and monetary policies on
our more fundamental objectives.
I am concerned about one aspect of the securities
markets:
the possibility that some upward adjustment of
longer-term interest yields might take place under the
weight of current Federal, state, local, and corporate
bond marketings. I would not want to try to tinker with
the long market to interfere with some temporary yield
fluctuations that might occur as part of the process of
digestion, but I also would want to be careful not to
have our monetary policy either trigger or aggravate
such a development. Accordingly, I would favor having
the Desk aim at keeping money market and reserve conditions
unchanged between now and the next meeting of the Committee.
I would vote to approve the curren: directive to the
Manager as drafted by the staff. I would prefer, however,
as I mentioned last time, to substitute "support" for
"reinforce" in the last sentence of the first paragraph,
in order to avoid any connotation that further tightening
is needed or desired.
Mr. Robertsor added that he agreed that the word "apparent"
should be deleted since the facts certainly indicated some improvement
in the balance of payments, and he would also delete the word "position"
after "international payments."
word "further,"
However, he did not favor omitting the
as suggested by Mr. Shepardson.
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5/11/65
Mr. Wayne reported that the steady advance of Fifth District
business continued with strength evident in almost every sector.
Over half of the respondents in the Bank's latest business survey
anticipated further gains in the weeks immediately ahead, and the
others were confident that current strength would be sustained.
Rates
of insured unemployment declined more than seasonally over the first
four months of the year.
The outlook for the District's agricultural
sector, however, was somewhat less favorable than for the rest of the
economy.
Last week the new acreage-poundage program for flue-cured
tobacco was approved by growers.
Even if that new program spurred
tobacco farmers to produce a better-quality, higher-priced product,
as was anticipated, the net effect might be to reduce income from this
year's marketirgs by as much as 10 or 15 per cent, from $718 million
to $650 million or perhaps even to $600 million.
The outlook for general business continued favorable, Mr. Wayne
said. While the interim steel settlement had not eliminated the
uncertainty surrounding that industry, it had at least pushed the
critical point four months into the future.
Steel consumption remained
strong and, given the political situation in steel labor, it appeared
likely that contract negotiations this summer would provide steel users
with a continuing incentive to maintain inventories at high, if not
rising, levels.
For the near term, the diminished urgency of strike
hedge buying and the possibility of some slackening in automobiles and
durable goods output might lead to somewhat lower steel production
figures.
It was too early to assess the impact on prices of the current
steel negotiations, but he was not optimistic on that score.
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5/11/65
Considering the longer-term prospect,
Mr.
Wayne said,
it
now
seemed clear that business plant and equipment spending would continue
to be a stimulating factor for the remainder of the year.
Coupled
with probable increases in Federal Government spending for defense
and perhaps also for velfare, those outlays might well insure a con
tinuation of the present expansion even in the face of a major inter
ruption in steel in the second half.
The latest Newsweek survey, how
ever, showed a significant reduction in manufacturers' capital appropria
tions in 1964's fourth quarter and was a reminder that businessmen's
stated investment intentions were not always matched by their actual
investment performance.
In the international area, Mr. Wayne observed, there seemed to
be substantial evidence that the voluntary restraint program had reduced,
at least temporarily, all major types of capital outflows.
The program
appeared to have been especially effective in curtailing bank term
loans to foreigners and, judging from the behavior of short rates, in
promoting return flows of liquid capital.
He also was encouraged by
reports of postponement of foreign investment plans and of stepped-up
borrowing abroad by U.S. corporations.
At the present juncture, how
ever, the magnitude of the improvement, as well as its permanency, was
uncertain.
In the absence of more supporting data than had been pro
vided to date, the estimated $1.2 billion improvement indicated for
this year in the reports by U.S. corporations to the Department of
Commerce seemed optimistic to him.
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5/11/65
Mr. Wayne recalled that at the last meeting he had suggested
the possibility that the demand for bank loans might ease, and there
were indications that that might be happening.
During the four weeks
ended April 28, commercial and industrial loans made by weekly re
porting banks declined slightly, probably reflecting the receding
effects of the dock strike, the reduction in foreign lending, and
some small slowdown in automobile sales.
Further, some slowing in
consumer credit loans seemed possible in the immediate future.
During
the first. quarter of 1965 the monthly increase in outstanding instal
ment credit was about 40 per cent above the average monthly increase
for last year.
Commercial banks increased their holdings of instal
ment loans by almost 60 per cent more than last year's average rise.
Such sharp inc-eases as those, coming after a long and sustained rise
in consumer credit, were usually followed by a much slower growth.
On
the other hand, expanding outlays for plant and equipment were being
financed to some extent by term loans from banks and that might help
sustain loan demand.
In the policy area, it seemed to Mr. Wayne that the Committee
had realized little in the way of results from its last two moves to
firmer conditions.
It was true that marginal reserve availability had
declined substantially as free reserves of $32 million in February
gave way to net borrowed reserves of about $140 million in April, but
the impact of that change on the rate structure had been small indeed.
Long-term rates had held steady or declined very slightly while some
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5/11/65
short-term rates had risen slightly and others had barely moved.
He
was aware that in recent weeks the repatriation of funds from abroad,
heavy institutional demand for bills, and the current Treasury refund
ing might have distorted the relationship between the Committee's policy
posture and some money rates.
Some of the effects of those factors
might diminish soon and perhaps some rate adjustments would be seer.,
but in the face of the Committee's tightening moves, total reserves,
nonborrowed reserves, and bank credit had increased at rates well above
the average for last year.
The behavior of those indicators made Mr.
Wayne doubt whether the Committee had in fact tightened.
In any
event, if loan demand eased off and if there was some slowdown in the
automobile and steel industries, there might be no need for firmer
credit conditions.
In view of that possibility and because of the
Treasury refunding and the early date of the next meeting, Mr. Wayne
favored no change in policy at this time.
The directive as prepared
and submitted by the staff with such changes in wording as the Com
mittee might be able to arrive at was satisfactory to him.
He thought
the substance of the draft directive was appropriate.
Mr. Clay observed that recent developments in the domestic
economy suggested a moderation in the pace of economic activity from
the unsustainable rate of growth of the first quarter.
It was evident
that automobile sales were adjusting to a more reasonable pattern.
While the interim steel agreement avoided the abrupt adjustment of a
strike or a final settlement, it probably would have some moderating
influence on output.
Those adjustments were taking place in an
5/11/65
-53
environment of general economic expansion.
In that connection, the
economic outlook was bolstered substantially by the latest projections
on business capital outlays.
Moreover, the prospective extension of
industrial capacity should be an important factor in maintaining
relative stability of prices.
Bank credit developments also appeared to be moderating, Mr.
Clay said, as several temporary factors requiring a larger volume of
business loans earlier in the year had abated.
for credit remained strong, however.
The underlying demand
Continued expansion in economic
activity, including business capital outlays, required a larger volume
of financing.
The staff statement indicated that the international balance
of payments developments were on the encouraging side, Mr. Clay commented,
but it obviously was too early to know the magnitude of the improvement
and the ultimate impact of the Administration program.
The domestic situation as well as international payments develop
ments suggested to Mr. Clay that monetary policy should be continued
unchanged.
The period of digestion following the Treasury refunding
also indicated a continuation of the present monetary policy during
the next interval between Committee meetings.
In carrying out such a
policy, Mr. Clay said, it should be the aim of the Committee to main
tain money market conditions essentially unchanged.
No special effort
should be made to move the Treasury bill rate upward, and reserve
availability should not be reduced for that purpose.
Neither should
monetary policy action be permitted to put pressure on longer-term
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5/11/65
interest rates.
In his opinion no change should be made in the Federal
Reserve discount rate.
The draft economic policy directive appeared
satisfactory to him.
Mr. Scanlon reported that economic activity in the Seventh Dis
trict remained strong.
tional areas.
Shortages of skilled labor were evident in addi
Durable goods producers continued to receive a good flow
of new orders and were optimistic that those would continue.
The Chicago
Reserve Bank continued to receive reports of new expansion programs as
firms encountered continued strong demand for their products.
The Bank's contacts in the steel industry indicated that output
was expected to decline only slightly through the remainder of the second
quarter, Mr. Scanlon said.
There had been surprisingly few order can
cellations or postponements following the four-month extension of the
While there was some evidence that production of goods
strike deadline.
containing steel had been accelerated because of strike fears, adjustments
would be confined largely to the steel industry itself.
Local experts in
the industry now anticipated a first half-second half decline in steel
production of 22 per cent compared to declines of 19 per cent and 15 per
cent in the second halves of 1962 and 1963 when strike threats boosted
first half output.
It was believed that the total buildup of steel inven
tories from September 1964 through June 1965 would amount to 9 million
tons.
A working estimate used by steel analysts was that 1 million tons
of steel would be liquidated in the third quarter of 1965 and another 4
million in the fourth quarter.
That estimate envisaged production of 8.8
to 9.0 million passenger cars this year and an FRB production index of 141
in the fourth quarter.
5/11/65
-55
With respect to capital spending, Mr. Scanlon continued, infor
mation obtained from contacts with business firms, announcements of new
projects, and statistics on new orders for various types of machinery
and equipment--including such components as gears, bearings, and fluid
power drives--all suggested further expansion of plans, consistent with
the recently reported McGraw-Hill survey.
Overall, the rise in capital
spending appeared to be proceeding at a vigorous, but orderly, pace.
From a District
standpoint increases in activity in firms producing
those goods would help to offset expected second half declines in
autos and steel.
He had little to add to the staff comments on the balance of
payments, Mr. Scanlon said, other than that the voluntary credit restraint
program was working very well thus far with banks in the Seventh District.
All of the major banks were within their base.
to be
There continued
concern, however, that the program for nonfinancial establishments was
lacking in clearly defined goals.
Bankers were fearful that anything
they might accomplish toward improving the balance of payments would
be offset by continued large outflows of direct investment.
On savings flows, Mr. Scanlon noted that the recent abatement
in time deposit growth seemed due largely to a sharp reduction in
month-to-month gains in corporate deposits outside New York.
The
recent slowing in corporate time deposit growth at small banks appeared
related in part to a narrowing in the spread between CD rates at small
and large banks.
Since smaller banks had to offer somewhat higher rates
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5/11/65
on CDs than large banks, the CD rate ceiling apparently had made it
more difficult for the smaller banks to roll over maturing CDs and to
attract new funds.
Unfavorable publicity resulting from investigations
of bank failures also had contributed to the decline in corporate time
deposits at small banks.
In addition, the typically small corporate
customers of the smaller banks had sizable fractions of their total
liquid asset hcldings in bank accounts; thus, the impact on time accounts
of quarterly tax and dividend payments probably was somewhat greater
than it was for larger firms able to raise cash from a wider variety
of sources.
For the first four months as a whole, Mr. Scanlon continued,
it seemed that some of the reduction in corporate holdings of time
deposits (and other liquid assets) was associated with the climb in
capital spending, including the buildup of inventories.
That such
factors were important during the period in corporate firancial manage
ment showed up also in the sharp rise in business borrowing from banks.
If the recent slackening in time deposit growth was to be attributed
mainly to reduction in corporate holdings, due to increased disburse
ments of cash, the likelihood was that corporations would have a
smaller volume of funds to supply to the market in coming weeks.
On bank credit, demand factors still appeared to Mr. Scanlon
to be sufficiently strong so that business loan expansion during the
summer might be as large or larger than usual.
The estimated step
up in capital expenditures could be expected to strengthen the demand
for bank loans so long as the cost of bank borrowing remained low
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5/11/65
relative to capital market financing.
In addition, postponment of
the steel settlement would probably encourage some further inventory
building, and increased credit needs, by steel users.
With respect to money market developments, District banks had
increased their holdings of Governments from the low end-of-March level.
Chicago banks as a group
They had done very little borrowing lately.
had been reporting very moderate net purchases of Federal funds, but
their CDs had risen by about $50 million over the past month.
Mr.
Scanlon concurred in the staff analysis relative to the outlook for
bill rates.
As to policy, Mr. Scanlon agreed with those who favored no
change today and certainly would not recommend any easier position.
He shared Mr. Wayne's views on the directive.
Mr. Galusha said that the weather, as usual, had dominated
recent developments in the agricultural sector of the Ninth Distric:;
the past winter had been the most severe in history in many parts
of the District.
However, the area was now emerging from its effects.
The livestock situation had improved markedly recently.
A fundamental
change in habits apparently was in process, with people eating more
beef.
The nonagricultural sector of the District was prospering,
Mr. Galusha continued.
There had been some evidence of an inventory
buildup, especially in the Twin Cities area.
Because of the recent
disasters, the prospective demand for new construction in the District
was heavy.
It was estimated that in Minnesota, and in the Twin Cities
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5/11/65
area particularly, the floods did $80-.90 million of damage, and last
week's tornadoes $20-$30 million.
Those were not unmixed tragedies
because the rebuilt plants would be better than the old ones.
In the area of personal expenditures, Mr. Galusha noted that
requests for reservations at Western national parks were high.
It
appeared that travel to those parks would be at an unprecedented level
this summer.
As to banking, Mr. Galusha continued, information from weekly
reporting banks suggested that District loan demand, like that of the
nation, slackened somewhat in April.
Although total credit at weekly
reporting banks increased slightly more in April than March, it
increased less on a seasonally adjusted basis.
The average loan
deposit ratio of District reporting banks presently was higher than
at any time since early 1960 and net Federal funds purchases were
high through April, so he would not suggest that District banks were
now wallowing in funds.
In fact, District banks might have some prob
lems in coming months, in view of the pressuce that would be put on
them in connection with reconstruction.
In a concluding remark, Mr. Galusha said that he agreed with
the consensus expressed so far on the directive.
Mr. Swan commented there had not been much change recently in
the Twelfth District economy.
In March, employment rose somewhat more
slowly than earlier in the year and there was no change in the rate of
unemployment.
Preliminary California figures
for April, however, showed
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5/11/65
some increase in the unemployment rate there.
The farm labor situation
still seemed to be generating more heat than light.
The special panel
appointed by Secretary of Labor Wirtz had recommended current use of
2,500 foreign workers, including 1,500 from Mexico.
tion dissatisfied people at both extremes;
That recommenda
it was a considerably smaller
number than the growers had requested, and there were those who felt
that no foreign workers should be brought in at all.
Mr. Swan said that business loans at reporting banks in the
District decreased slightly in the four weeks ending April 23, in con
trast to earlier gains and to an increase in April 1964.
Also, the
decline in savings deposits during April was considerably less than a
year ago, although virtually all of the decline in savings accounts
at reporting banks nationally was accounted for by banks in the Twelfth
District.
Despite the business loan decrease and the strength in
savings deposits, District banks seemed to come under somewhat more
pressure during April, and were borrowing more from the Reserve Bank
than earlier in the year.
The increase in real estate loans in April
was larger than that of the entire first quarter, but because the first
quarter rise had been much less than in 1964 and because the April
increase was concentrated in one week it was too early to say whether
the rise reflected any change in bank attitudes toward mortgages.
Mr. Swan remarked that he had little to add, or to differ with,
with respect to the staff comments on the questions.
He agreed that
the extension of the steel contract did have a stabilizing influence
on the near-term outlook, and it seemed to him that the announced capital
5/11/65
-60
spending plans were related to capacity pressures and were not out of
line with the rest of activity.
In light of domestic developments, the situation with respect
to the foreign loan program, and the current Treasury financing, Mr.
Swan agreed that there should be no change in policy today.
That
decision would seem to call for about the same level of member bank
borrowing and net borrowed reserves as had been experienced recently.
In view of the general tightness of Federal funds and other areas of
the money market besides Treasury bills he certainly would not favor
efforts to raise the bill rate within a generally unchanged posture
of policy.
It would be one thing if market forces led to some increase;
but if they did not he would not do anything about it in the next two
weeks.
The draft directive was acceptable to Mr. Swan.
However, he
also would suggest that the word "apparent" be deleted.
Mr. Irons reported that conditions in the Eleventh District
continued generally favorable.
Some preliminary figures suggested
that
there might have been a slight slip off in April--certainly not a large
one.
There had been a minor decline in District industrial production
recently and construction also had slipped off somewhat.
Unemployment
was up a bit in the last month but was still running under the national
rate.
Purchases of new cars had slackened somewhat but total retail
sales were holding up well.
The agricultural situation was somewhat mixed, Mr. Irons noted.
Conditions in the eastern half or two-thirds of the District continued
quite favorable but in the western part they were quite dry.
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5/11/65
On the financial front, Mr. Irons continued, bank credit and
bank loans increased in April but less than previously, as in the nation
as a whole.
District banks had been active users of Federal funds, with
purchases recently running about $275 million in excess of sales.
holdings of Treasury bills were down a bit.
Bank
Borrowings from the Reserve
Bank were little changed and discounting activity had not been unduly
high.
Mr. Irons said he would omit the detailed comments he had planned
to make on the national situation since others had already made similar
points.
He recommended that there be no change in policy at this time.
Such a conclusion was indicated by the economic situation, which in his
judgment continued to show strength and also signs of somewhat greater
For
stability in movement than the Committee might have anticipated.
example, the inventory situation appeared less unmanageable than earlier,
and the interim steel settlement also worked in that direction.
The
fact that the Treasury financing would be in the process of being con
cluded in the period before the next meeting also argued for no change
in policy.
Specifically, Mr. Irons said, he favored net borrowed reserves
of something above $100 million--perhaps in the range of $100-$125
million.
He would expect the Federal funds rate to be in the 4 to 4-1/8
per cent area, more frequently at the latter figure than the former.
He
was not overly concerned about a bill rate level of around 3.90 per cent.
Perhaps a 3.94 or 3.95 per cent rate would be better, and he would not
object if it moved to that level, but he certainly would not favor
deliberate, positive actions to force the rate up.
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5/11/65
The staff draft of the directive seemed satisfactory to Mr.
Irons.
He was prepared to leave the semantic questions to others at
the meeting.
Mr. Ellis commented that New England continued to illustrate
that substantial and widespread expansion in aggregate demand and
production could not be relied upon to resolve structural unemploy
ment, at least within a single region such as New England.
Both
manufacturing and nonmanufacturing employment rose more than seasonally
in March, and total nonfarm employment reached a new peak, with each
State in the District registering year-to-year gains.
The regional
unemployment rate for March was 4.4 per cent, below the 4.7 per cent
national rate.
The insured unemployment level as of mid-April had
declined 24 per cent in twelve months.
Supporting those statistics, Mr. Ell.'s said, were the many
pages of employment advertisements in the daily press as well as
testimony from a large Connecticut employer that Boston employers
were trying to dissuade Boston newspapers from carrying ads for employ
ment in Connecticut.
The same Connecticut employer claimed that the
Pennsylvania Employment Office was withholding its services to potential
recruiters.
A spokesman for one of the larger private shipyards used
personal appeals to oust a Seattle recruiting officer who was offering
moving costs and tempting wages to draw trained workers to the West
Coast.
At yesterday's meeting of the directors of the Boston Reserve
Bank two directors complained of the lack of skilled labor, and one
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5/11/65
observed that he could expand employment by 2,000 if he could find
the right workers.
Those directors would not accept the notion that
New England suffered from distress unemployment at present.
Despite such evidences of over-full employment, Mr. Ellis con
tinued, New England continued to account for eight of the nation's 29
major labor areas classified as having a substantial labor surplus.
Nevertheless, the dominant tone of the region was one of prosperous
expansion.
Last minute telephone confirmations indicated current
upward revisions in the 1965 capital spending plans of New England
manufacturers, which presently tallied out as an expected gain of 19
per cent.
For three years, the reporting manufacturers had used bor
rowing to a greater extent than they had planned in advance.
Last
spring they foresaw financing 9 per cent of 1964 outlays by borrowing
but they actually financed 14 per cent in that manner.
This year
they reported intentions to borrow 6 per cent of their 19 per cent
higher outlays.
Mr. Ellis saw no reason to disagree with the standard expecta
tions expressed in the staff memorandum resulting from the steel negotia
tions or the capital spending surveys.
Both the extension of the steel
wage contract and the further upward revision of capital spending served
to strengthen the near-term outlook for business.
international capital
With respect to
flows, he could only report that of the ten New
England banks reporting monthly progress under the guidelines, only
four were above year-end levels at all.
Two banks exceeded the target,
by 26 per cent and 57 per cent, respectively, the group averaged a 4
per cent growth from December to March.
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5/11/65
The principal implication Mr. Ellis associated with the current
rate of time deposit growth was that it probably represented a less
excessive situation than prevailed in January and February.
Growth in
those two months quite clearly represented shifting from one type of
account holding to another in response to the higher time deposit rates
allowed under Regulation Q.
Recent liquid asset growth had exceeded
the true rate of saving out of income so in part it had to represent
one-time switching of assets.
Mr. Ellis remarked that the steel moratorium, slower auto sales,
a moderation in the balance of payments crises, and slower expansion of
retail sales all suggested that some of the pressure at the margin on
bank loans to business might diminish.
The current reports on business
loans, however, gave a contrary indication.
Mr. Ellis noted that the staff memorandum listed several factors
that would be operating in money markets in the next few weeks, even
within the framework of even keel.
He would single out two that might
operate to avo:.d further weakening of bill rates.
First, the Treasury
would not need to continue operations at the short end of the market
to render its anchor issue more attractive.
Secondly, reserve projec
tions indicated that instead of injecting substantial funds to achieve
reserve objectives, the System Account might be able to make net sales
in meeting the objectives for the next two weeks.
Thus, within the
framework of even keel, Mr. Ellis hoped and anticipated that there
would be a rise of a few points in short bill rates and continued firm
ness in the money market, with member bank borrowing averaging $450
million and net borrowed reserves in the $100-$150 million range.
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5/11/65
On the draft directive, Mr. Ellis favored dropping the word
"apparent."
On reflection he also would endorse Mr. Shepardson's
suggestion to drop the word "further"; he was not sure what the word
implied but on his interpretation it conflicted with the preceding
phrase regarding avoiding the emergence of inflationary pressures.
He did not think the Committee could continue for long to characterize
a nine per cent growth rate in the reserve base as "moderate," or to
permit such a rate to be maintained without recognizing that it was
promoting inflationary pressures.
Mr. Balderston commented that since the next meeting of the
Committee would be held in only two weeks he would favor the status
quo with respect to policy.
He thought that in the interval before
the next meeting Committee members might well consider carefully the
points Mr. Bryan had made today.
He (Mr. Balderston) was impressed
not only by the fact that total reserves had been growing at a 9 per
cent rate since the beginning of the year but also by the fact that
demand deposit turnover at reporting centers outside New York was
about 8 per cent higher in March than six months earlier.
Mr. Balderston subscribed to the changes in the draft directive
suggested by Mr. Ellis; he would delete the words "apparent" and "further."
Chairman Martin remarked that there seemed to be general agree
ment today with respect to policy, although some differences of opinion
existed as to the best wording of certain phrases in the first paragraph
of the directive.
There ensued some further discussion of the directive
language to be employed.
5/11/65
-66Thereupon, upon motion duly made
and seconded, and 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 economic and financial developments reviewed at
this meeting indicate a generally strong further expansion
of the domestic economy and some improvement in our inter
national balance of payments, but with gold outflows con
tinuing. In this situation, it remains the Federal Open
Market Committee's current policy to reinforce the volun
tary restraint program to strengthen the international
position of the dollar, and to avoid the emergence of
inflationary pressures, while accommodating moderate
growth in the reserve base, bank credit, and the money
supply.
To implement this policy, while taking into account
the current Treasury financing, System open market opera
tions over the next two weeks shall be conducted with a
view to maintaining about the same conditions in the
money market as have prevailed in recent weeks.
It was agreed that the next meeting of the Committee would be
held on Tuesday, May 25, 1965, at 9:30 a.m.
Thereupon the meeting adjourned.
ecretary
Attachment A
CONFIDENTIAL (FR)
May 10, 1965
Draft of Current Economic Policy Directive
for Consideration by the Federal Open Market Committee
at its Meeting on May 11, 1965
The economic and financial developments reviewed at this
meeting indicate a generally strong further expansion of the domestic
economy and some apparent improvement in our international payments
position, but with gold outflows continuing.
In this situation, it
remains the Federal Open Market Committee's current policy to rein
force the voluntary restraint program to strengthen the international
position of the dollar, and to avoid the emergence of inflationary
pressures, while accommodating moderate further growth in the reserve
base, bank credit, and the money supply.
To implement this policy, while taking into account the current
Treasury financing, System open market operations over the next two
weeks shall be conducted with a view to maintaining about the same
conditions in the money market as have prevailed in recent weeks.
Cite this document
Federal Reserve (1965, May 10). FOMC Minutes. Fomc Minutes, Federal Reserve. https://whenthefedspeaks.com/doc/fomc_minutes_19650511
@misc{wtfs_fomc_minutes_19650511,
author = {Federal Reserve},
title = {FOMC Minutes},
year = {1965},
month = {May},
howpublished = {Fomc Minutes, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/fomc_minutes_19650511},
note = {Retrieved via When the Fed Speaks corpus}
}