FOMC Minutes

Meeting of Federal Open Market Committee

May 11,

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, May 11, 1971, at 9:30 a.m.

PRESENT:

Mr.

Mr.

Mr.

Mr.

Mr.

Burns, Chairman

Hayes, Vice Chairman

Brimmer

Clay

Daane

Kimbrel

Maisel

Mayo

Mitchell

Morris

Mr.

Mr.

Mr.

Mr.

Mr.

Mr. Robertson

Mr. Sherrill

Messrs. Coldwell, Eastburn, and Swan, Alternate

Members of the Federal Open Market Committee

Messrs. Heflin and Francis, Presidents of the

Federal Reserve Banks of Richmond and

St. Louis,

respectively

Mr. Holland, Secretary

Mr. Broida, Deputy Secretary

Messrs. Bernard and Molony, Assistant

Secretaries

Mr. Hackley, General Counsel

Mr. Partee, Economist

Messrs. Axilrod, Eisenmenger, Gramley, Hersey,

Reynolds,

Scheld, Taylor, and Tow,

Associate Economists

Account.

Mr. Holmes, Manager, System Open Market

Mr. Coombs, Special Manager, System Open Market

Account

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Mr. Leonard, Assistant Secretary, Office of

the Secretary, Board of Governors

Mr. Cardon, Assistant to the Board of Governors

Mr. O'Brien, 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

Messrs. Bryant and Gemmill, Associate Advisers,

Division of International Finance, 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

Miss Orr, Secretary, Office of the Secretary,

Board of Governors

Messrs. MacDonald and Strothman, First Vice

Presidents, Federal Reserve Banks of

Cleveland and Minneapolis, respectively

Messrs. Link and Craven, Senior Vice Presi

dents, Federal Reserve Banks of New York

and San Francisco, respectively

Messrs. Hocter, Snellings, Andersen, and Green,

Vice Presidents, Federal Reserve Banks of

Cleveland, Richmond, St. Louis, 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 meet

ing of the Federal Open Market Committee held on April 6, 1971, were

approved.

The memorandum of discussion for the meeting of the Federal

Open Market Committee held on April 6, 1971, was accepted.

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By unanimous vote, the System open market transactions in

foreign currencies during the period April 6 through May 10, 1971,

were approved, ratified, and confirmed.

It was agreed that a subcommittee consisting of the Chairman

and Vice Chairman of the Committee and the Vice Chairman of the Board

of Governors, or designated alternates, should be authorized to act

on behalf of the Committee with respect to any response that might be

made to central banks in the System's swap network raising questions

similar to that raised recently by one such central bank concerning

the appropriate interpretation of certain language in the swap con

tracts.

By unanimous vote, the open market transactions in Government

securities, agency obligations, and bankers' acceptances during th.

period April 6 through May 10, 1971, 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 suggests

that real output of goods and services rose substan

tially in the first quarter primarily because of the

resumption of higher automobile production, and more

moderate growth appears to be in prospect for the cur

rent quarter. The unemployment rate remained high in

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April. Wage rates in most sectors are continuing to

rise at a rapid pace. The rate of advance in consumer

prices and in wholesale prices of industrial commodi

ties moderated in the first quarter, but the rise in

industrial prices stepped up again in April. The money

stock both narrowly and broadly defined expanded sub

stantially further in April but growth in bank credit

slowed. Inflows of consumer-type time and savings

funds to banks moderated, partly as a result of reduc

tions in the interest rates offered by banks, but flows

to nonbank thrift institutions continued heavy. Inter

est rates on most types of short- and long-term market

securities rose sharply in April and early May, reflect

ing uncertainties about domestic, and more recently

international, financial prospects. The over-all bal

ance of payments deficit in the first four months of

1971 was exceptionally large, in great part reflecting

short-term capital outflows. Recently, after further

large international flows of funds, several European

central banks suspended sales of their currencies for

dollars; subsequently, announcements were made that

the German mark and Dutch guilder would be permitted

to float for the time being, and that the Swiss franc

and Austrian schilling were being revalued. In light

of the foregoing developments, it is the policy of

the Federal Open Market Committee to foster financial

conditions conducive to the resumption of sustainable

economic growth, while encouraging an orderly reduction

in the rate of inflation, moderation of short-term

capital outflows, and attainment of reasonable equi

librium in the country's balance of payments.

To implement this policy, the Committee seeks to

moderate growth in monetary and credit aggregates over

the months ahead, taking account of the current Treasury

financing, developments in capital markets, and uncer

System open

tainties in foreign exchange markets.

market operations until the next meeting of the Commit

tee shall be aimed initially at maintaining currently

prevailing money market conditions, and thereafter

conducted with a view to maintaining bank reserves and

money market conditions consistent with the above-cited

objectives.

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

Committee would be held on Tuesday, June 8, 1971, at 9:30 a.m.

The meeting adjourned.

Secretary