FOMC Minutes

Meeting of Federal Open Market Committee

January 12, 1971

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, January 12, 1971, at 9:30 a.m.

PRESENT:

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Burns, Chairman

Brimmer

Daane

Francis

Heflin

Maisel

Mitchell

Robertson

Swan

Mayo, Alternate

Treiber, Alternate for Mr. Hayes

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, Parthemos, Reynolds, and Solomon,

Associate Economists

Mr. Holmes, Manager, System Open Market Account

Mr. Coombs, Special Manager, System Open Market

Account

1/12/71

-2Messrs. Bernard and Leonard, Assistant

Secretaries, Office of the Secretary,

Board of Governors

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. Gemmill, 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. Scheld and Green, Vice Presidents,

Federal Reserve Banks of Chicago and

Dallas, respectively

Messrs. Gustus and Kareken, Economic Advisers,

Federal Reserve Banks of Philadelphia and

Minneapolis, respectively

Mr. Geng, Assistant Vice President, 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 December 15,

1970, were approved.

The memorandum of discussion for the meeting of the Federal

Open Market Committee held on December 15, 1970, was accepted.

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By unanimous vote, the System open market transactions in

foreign currencies during the period December 15, 1970, through

January 11, 1971, were approved, ratified, and confirmed.

By unanimous vote, the open market transactions in Government

securities, agency obligations, and bankers' acceptances during

the period December 15, 1970, through January 11, 1971, 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 declined in the

fourth quarter of 1970, largely as a consequence of

the recent strike in the automobile industry. Unemploy

ment increased further in December. The resumption of

higher automobile 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

productivity appear to be slowing the increase in unit

labor costs. The rise in both wholesale and consumer

prices appears to have moderated recently, following

substantial increases earlier in the fall. Most market

interest rates turned down again in recent days, and

Federal Reserve discount rates were reduced by an

Demands

additional one-quarter of a percentage point.

for funds in capital markets have continued heavy, but

business loan demands at banks remain weak. Although

growth in the money supply accelerated in December,

over the fourth quarter as a whole it was at a rate

below that prevailing in the preceding three quarters.

Banks made substantial further additions to their hold

ings of securities in December, and bank credit

increased sharply. The foreign trade surplus has

declined markedly in recent months. The over-all balance

of payments deficit on the liquidity basis in the fourth

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quarter was apparently about as large as in the third

quarter. 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 conducive to the resump

tion of sustainable economic growth, while encouraging

an orderly reduction in the rate of inflation and the

attainment of reasonable equilibrium in the country's

balance of payments.

To implement this policy, the Committee seeks to

promote accommodative conditions in credit markets and

moderate expansion in monetary and credit aggregates.

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 those objectives, taking account of

the forthcoming Treasury financing.

It was agreed that the next meeting of the Federal Open

Market Committee would be held on Tuesday, February 9, 1971, at

9:30 a.m.

The meeting adjourned.

Secretary