FOMC Minutes

Meeting of Federal Open Market Committee

August 18,

1970

MINUTES OF ACTIONS

A meeting of the Federal Open Market Committee was held in

the offices

in

of the Board of Governors of the Federal Reserve System

Washington,

D.C.,

PRESENT:

on Tuesday,

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

August 18,

1970,

at 9:30 a.m.

Burns, Chairman

Hayes, Vice Chairman

Brimmer

Daane

Francis

Heflin

Hickman

Maisel

Mitchell

Robertson

Sherrill

Swan

Messrs. Galusha, Kimbrel, Mayo, and Morris, Alternate

Members of the Federal Open Market Committee

Messrs. Clay and Coldwell, Presidents of the Federal

Reserve Banks of Kansas City and Dallas,

respectively

Mr. Broida, Deputy Secretary

Messrs. Kenyon and Molony, Assistant Secretaries

Mr. Hackley, General Counsel

Mr. Partee, Economist

Messrs. Axilrod, Craven, Garvy, Hocter,

Parthemos, Reynolds, and Solomon, Associate

Economists

Mr. Coombs, Special Manager, System Open Market

Account

Messrs. Bernard and Leonard, Assistant

Secretaries, Office of the Secretary,

Board of Governors

Mr. Cardon, Assistant to the Board of Governors

Mr. Coyne, Special Assistant to the Board of

Governors

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Mr. Williams, Adviser, Division of Research and

Statistics, Board of Governors

Mr. Wendel, Chief, Government Finance Section,

Division of Research and Statistics, Board

of Governors

Miss Eaton, Open Market Secretariat Assistant,

Office of the Secretary, Board of Governors

Mr. Melnicoff, First Vice President, Federal

Reserve Bank of Philadelphia

Messrs. Eisenmenger and Tow, Senior Vice

Presidents, Federal Reserve Banks of Boston

and Kansas City, respectively

Messrs. Sternlight, Brandt, Scheld, Nelson, and

Green, Vice Presidents, Federal Reserve Banks

of New York, Atlanta, Chicago, Minneapolis,

and Dallas, respectively

Mr. Bowsher, Assistant Vice President, Federal

Reserve Bank of St. Louis

Mr. Gustus, Economic Adviser, Federal Reserve

Bank of Philadelphia

Mr. Sandberg, Securities Trading Officer,

Federal Reserve Bank of New York

Secretary's note: Advices had been received

of the election by the Federal Reserve Banks of

Cleveland and Chicago of Mr. Robert P. Mayo,

President of the Federal Reserve Bank of Chicago,

as alternate member of the Federal Open Market

Committee to represent those Federal Reserve

Banks for the balance of the one-year term

expiring February 28, 1971; and it appeared

that Mr. Mayo was legally qualified to serve.

Mr. Mayo had executed his oath of office prior

to this meeting.

By unanimous vote, the minutes of actions taken at the meeting

of the Federal Open Market Committee held on July 21, 1970, were

approved.

The memorandum of discussion for the meeting of the Federal

Open Market Committee held on July 21, 1970, was accepted.

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By unanimous vote, the System open market transactions in

foreign currencies during the period July 21 through August 17, 1970,

were approved, ratified, and confirmed.

By unanimous vote, the open market transactions in Government

securities,

agency obligations,

and bankers'

period July 21 through August 17,

1970,

acceptances

were approved,

during the

ratified,

and

confirmed.

With Messrs. Hayes, Brimmer, and Francis dissenting, the

Federal Reserve Bank of New York was authorized and directed, until

otherwise directed by the Committee,

to execute transactions in

System Account in accordance with the following current economic

policy directive:

The information reviewed at this meeting suggests

that real economic activity, which edged up slightly

in the second quarter after declining appreciably ear

lier in the year, may be expanding somewhat further.

Prices and wage rates generally are continuing to rise

at a rapid pace.

However, improvements in productivity

appear to be slowing the rise in costs, and some major

price measures are showing moderating tendencies. Credit

demands in securities markets have continued heavy,

and interest rates have shown mixed changes since mid

July after declining considerably in preceding weeks.

Some uncertainties persist in financial markets,

particularly in connection with market instruments

of less than prime grade. In July the money supply

rose moderately on average and bank credit expanded

substantially. Banks increased holdings of securities

and loans to finance companies, some of which were

experiencing difficulty in refinancing maturing

commercial paper. Banks sharply expanded their out

standing large-denomination CD's of short maturity,

for which rate ceilings had been suspended in late

June, and both banks and nonbank thrift institutions

experienced large net inflows of consumer-type time

and savings funds. The over-all balance of payments

remained in heavy deficit in the second quarter,

the

8/18/70

despite a sizable increase in the export surplus.

In July the official settlements deficit continued

large, but there apparently was a marked shrinkage

in the liquidity deficit.

In light of the foregoing

developments, it is the policy of the Federal Open

Market Committee to foster financial conditions conducive

to orderly reduction in the rate of inflation, while

encouraging the resumption of sustainable economic growth

and the attainment of reasonable equilibrium in the

country's balance of payments.

To implement this policy, the Committee seeks to

promote some easing of conditions in credit markets and

somewhat greater growth in money over the months ahead

than occurred in the second quarter, while taking account

of possible liquidity problems and allowing bank credit

growth to reflect any continued shift of credit flows

from market to banking channels. System open market

operations until the next meeting of the Committee shall

be conducted with a view to maintaining bank reserves

and money market conditions consistent with that objec

tive, taking account of the effects of other monetary

policy actions.

It was agreed that the next meeting of the Federal Open Market

Committee would be held on Tuesday, September 15, 1970, at 9:30 a.m.

The meeting adjourned.

Deputy Secretary