FOMC Minutes

Meeting of Federal Open Market Committee

Decenber 15, 1970

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., on Tuesday, December 15, 1970, at 9:30 a.m.

PRESENT:

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Burns, Chairman

Hayes, Vice Chairman

Brimmer

Daane

Francis

Heflin

Maisel

Mitchell

Robertson

Sherrill

Swan

Mayo, Alternate

Messrs. Galusha, Kimbrel, and Morris, Alternate

Members of the Federal Open Market Committee

Messrs. Eastburn, Clay, and Coldwell, Presidents

of the Federal Reserve Banks of Philadelphia,

Kansas City, and Dallas, respectively

Mr. Holland, Secretary

Mr. Broida, Deputy Secretary

Messrs. Kenyon and Molony, Assistant

Secretaries

Mr. Hackley, General Counsel

Mr. Hexter, Assistant General Counsel

Mr. Partee, Economist

Messrs. Axilrod, Craven, Gramley, Hersey,

Hocter, Jones, Reynolds, and Solomon,

Associate Economists

Mr. Holmes, Manager, System Open Market Account

Messrs. Bernard and Leonard, Assistant Secre

taries, Office of the Secretary, Board of

Governors

12/15/70

Mr. Coyne, Special Assistant to the Board of

Governors

Messrs. Wernick and Williams, Advisers,

Division of Research and Statistics,

Board of Governors

Mr. Keir, Associate Adviser, Division of

Research and Statistics, Board of

Governors

Mr. Bryant, Associate Adviser, Division of

International Finance, Board of

Governors

Mr. Wendel, Chief, Government Finance

Section, Division of Research and

Statistics, Board of Governors

Miss Ormsby, Special Assistant, Office of

the Secretary, Board of Governors

Miss Eaton, Open Market Secretariat

Assistant, Office of the Secretary,

Board of Governors

Miss Orr, Secretary, Office of the

Secretary, Board of Governors

Mr. MacDonald, First Vice President, Federal

Reserve Bank of Cleveland

Messrs. Eisenmenger, Link, Taylor, and Tow,

Senior Vice Presidents, Federal Reserve

Banks of Boston, New York, Atlanta, and

Kansas City, respectively

Messrs. Bodner, Snellings, Scheld, and Green,

Vice Presidents, Federal Reserve Banks of

New York, Richmond, Chicago, and Dallas,

respectively

Messrs. Gustus and Kareken, Economic Advisers,

Federal Reserve Banks of Philadelphia and

Minneapolis, respectively

Mr. Sandberg, Securities Trading Officer,

Federal Reserve Bank of New York

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

of the Federal Open Market Committee held on November 17, 1970, were

approved.

The memorandum of discussion for the meeting of the Federal

Open Market Committee held on November 17,

1970, was accepted.

12/15/70

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By unanimous vote, the System open market transactions in

foreign currencies during the period November 17 through December 14,

1970, were approved, ratified, and confirmed.

By unanimous vote, the open market transactions in Government

securities, agency obligations, and bankers' acceptances during the

period November 17 through December 14, 1970, were approved, ratified,

and confirmed.

With Mr. Francis dissenting, 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 suggests

that real output of goods and services has declined

since the third quarter, largely as a consequence of

the recent strike in the automobile industry, and that

unemployment has increased. Resumption of higher auto

mobile production is expected to result in a bulge in

activity in early 1971. Wage rates generally are

continuing to rise at a rapid pace, but gains in pro

ductivity appear to be slowing the increase in unit

labor costs. Movements in major price measures have

been diverse; most recently, wholesale prices have

shown little change while consumer prices have advanced

substantially. Market interest rates declined con

siderably further in the past few weeks, and Federal

Reserve discount rates were reduced by an additional

one-quarter of a percentage point. Demands for funds

in capital markets have continued heavy, but business

loan demands at banks have been weak. Growth in the

money supply was somewhat more rapid on average in

November than in October, although it remained below

the rate prevailing in the first three quarters of the

year. Banks acquired a substantial volume of securities

in November, and bank credit increased moderately after

changing little in October. The foreign trade balance

in September and October was smaller than in any other

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12/15/70

2-month period this year. The over-all balance of pay

ments deficit on the liquidity basis remained in October

and November at about its third-quarter rate. The deficit

on the official settlements basis was very large as banks

continued to repay Euro-dollar liabilities. In light of

the foregoing developments, it is the policy of the Federal

Open Market Committee to foster financial conditions con

ducive 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, System open market operations

shall be conducted with a view to maintaining the recently

attained money market conditions until the next meeting of

the Committee, provided that the expected rates of growth

in money and bank credit will at least be achieved.

By unanimous vote, renewal for further periods of one year of

the following swap arrangements, having the indicated amounts and

maturity dates, was approved:

Foreign bank

National Bank of Belgium

Bank of Canada

Bank of France

German Federal Bank

Bank of Italy

Netherlands Bank

Amount of

arrangement

(millions of

dollars)

500

1,000

1,000

1,000

1,250

300

Maturity

of latest

authorized

renewal

December

December

December

December

December

December

22,

30,

28,

16,

30,

30,

1970

1970

1970

1970

1970

1970

In connection with the foregoing action, it was reported

that some of the central banks affected had raised certain technical

questions regarding procedures used in the operation of the swap

arrangements and that discussions of the matter with those central

banks were currently under way.

It was agreed that a subcommittee,

consisting of the Chairman and Vice Chairman of the Committee and

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the Vice Chairman of the Board of Governors, or designated alter

nates, should be authorized to act on behalf of the Committee

with respect to the matter, on the understanding that the sub

committee would communicate with the full Conmittee if it had

any serious doubts about the appropriate course of action.

It was agreed that the next meeting of the Federal Open

Market Committee would be held on Tuesday, January 12, 1971.

The meeting adjourned.

Secretary