FOMC Minutes

Meeting of Federal Open Market Committee

May 28, 1968

MINUTES OF ACTIONS

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:

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

on Tuesday, May 28, 1968, at 9:45 a.m.

Martin, Chairman

Hayes, Vice Chairman

Brimmer

Daane

Ellis

Galusha

Hickman

Kimbrel

Maisel

Mitchell

Robertson

Sherrill

Messrs. Bopp, Clay, Coldwell, and Scanlon,

Alternate Members of the Federal Open

Market Committee

Messrs. Heflin, Francis, and Swan, Presidents

of the Federal Reserve Banks of Richmond,

St. Louis, and San Francisco, respectively

Mr. Holland, Secretary

Mr. Sherman, Assistant Secretary

Mr. Kenyon, Assistant Secretary

Mr. Broida, Assistant Secretary

Mr. Molony, Assistant Secretary

Mr. Hackley, General Counsel

Mr. Hexter, Assistant General Counsel

Mr. Brill, Economist

Messrs. Axilrod, Hersey, Kareken, Mann,

Partee, Solomon, and Taylor,

Associate Economists

Mr. Holmes, Manager, System Open Market

Account

Mr. Coombs, Special Manager, System Open

Market Account

-2

5/28/68

Mr. Cardon, Assistant to the Board of

Governors

Messrs. Gramley and Williams, Advisers,

Division of Research and Statistics,

Board of Governors

Mr. Wernick, Associate Adviser, Division

of Research and Statistics, Board of

Governors

Mr. Keir, Assistant Adviser, Division of

Research and Statistics, Board of

Governors

Mr. Bernard, Special Assistant, Office of

the Secretary, Board of Governors

Miss Eaton, General Assistant, Office of

the Secretary, Board of Governors

Miss McWhirter, Analyst, Office of the

Secretary, Board of Governors

Messrs. Eisenmenger, Eastburn, Parthemos,

Baughman, Andersen, Tow, Green, and

Craven, Vice Presidents of the Federal

Reserve Banks of Boston, Philadelphia,

Richmond, Chicago, St. Louis, Kansas

City, Dallas, and San Francisco,

respectively

Mr. Garvy, Economic Adviser, Federal Reserve

Bank of New York

Mr. Meek, Assistant Vice President, Federal

Reserve Bank of New York

Mr. Duprey, Economist, Federal Reserve Bank

of Minneapolis

By unanimous vote, the minutes of actions taken at the

meetings of the Federal Open Market Committee held on April 19 and

30, 1968, were approved.

The memoranda of discussion for the meetings of the Federal

Open Market Committee held on April 19 and 30, 1968, were accepted.

By unanimous vote, the System open market transactions in

foreign currencies during the period April 30 through May 27, 1968,

were approved, ratified, and confirmed.

5/28/68

-3

By unanimous vote, paragraph 1B(3) of the authorization

for System foreign currency operations was amended, effective

immediately, to read as follows:

1B(3). Sterling purchased on a covered or

guaranteed basis in terms of the dollar, under

agreement with the Bank of England, up to $300

million equivalent.

By unanimous vote, renewal for a further period of three

months of the $100 million swap arrangement with Bank of France,

maturing June 28, 1968, was approved.

By unanimous vote, renewal for a further period of six

months of the $50 million fully drawn portion of the swap arrange

ment with the National Bank of Belgium, maturing June 24, 1968,

was approved.

By unanimous vote, renewal for further periods of three

months of two System drawings on the National Bank of Belgium,

maturing June 12 and June 19, 1968, respectively, was authorized.

By unanimous vote, renewal for further periods of three

months of the System's Swiss franc drawings on the Swiss National

Bank and the Bank for International Settlements, maturing June 18

and June 21, 1968, respectively, was authorized.

By unanimous vote, renewal for further periods of three

months of two drawings by the Bank of England, maturing June 11

and June 28, respectively, was authorized.

5/28/68

By unanimous vote, paragraph 4 of the foreign currency

directive was amended, effective immediately, to read as follows:

Unless otherwise expressly authorized by the

Committee, transactions in forward exchange, either

outright or in conjunction with spot transactions, may

be undertaken only (i) to prevent forward premiums or

discounts from giving rise to disequilibrating movements

of short-term funds; (ii) to minimize speculative disturb

ances; (iii) to supplement existing market supplies of

forward cover, directly or indirectly, as a means of

encouraging the retention or accumulation of dollar

holdings by private foreign holders; (iv) to allow greater

flexibility in covering System or Treasury commitments,

including commitments under swap arrangements, and to

facilitate operations of the Stabilization Fund; (v) to

facilitate the use of one currency for the settlement of

System or Treasury commitments denominated in other

currencies; and (vi) to provide cover for System holdings

of foreign currencies.

By unanimous vote, the open market transactions in Government

securities, agency obligations, and bankers' acceptances during the

period April 30 through May 27, 1968, were approved, ratified, and

confirmed.

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 information reviewed at this meeting indicates

that the very rapid increase in over-all economic activity

is being accompanied by persisting inflationary pressures.

There has been little or no growth on average in bank

credit and time and savings deposits over the past two

months, although the money supply has expanded consider

In recent

ably as U.S. Government deposits have declined.

5/28/68

weeks both short- and long-term interest rates have risen

sharply on balance from their earlier advanced levels,

partly in reaction to shifting expectations with regard

to the likelihood of fiscal restraint. There has been

some revival of speculative activity in the private gold

market and in foreign exchange markets. The U.S. foreign

trade balance and over-all payments position continue to

be a matter of serious concern. In this situation, it

is the policy of the Federal Open Market Committee to

foster financial conditions conducive to resistance of

inflationary pressures and attainment of reasonable

equilibrium in the country's balance of payments, while

taking account of the potential for severe pressures in

financial markets if fiscal restraint is not forthcoming.

To implement this policy, System open market opera

tions until the next meeting of the Committee shall be

conducted with a view to maintaining firm conditions in

the money market; provided, however, that operations shall

be modified if bank credit appears to be deviating

significantly from current projections or if unusual

pressures should develop in financial markets.

It

was agreed that the next meeting of the Committee would

be held on Tuesday,

June 18, 1968,

at 9:30 a.m.

The meeting adjourned.

Secretary