FOMC Minutes

Meeting of Federal Open Market Committee

June 8, 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.,

PRESENT:

on Tuesday, June 8, 1971,

at 9:30 a.m.

Mr. Burns, Chairman

Mr. Brimmer

Mr. Clay

Mr. Daane

Mr. Kimbrel

Mr. Maisel

Mr. Mayo

Mt. Mitchell

Mr. Morris

Mr.

Robertson

Mr. Sherrill

Mr. Treiber, Alternate for Mr. Hayes

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. Hexter, Assistant General Counsel

Mr. Partee, Economist

Messrs. Axilrod, Eisenmenger, Hersey,

Scheld,

Solomon, Taylor,

and Tow,

Associate Economists

Mr. Holmes, Manager, System Open Market

Account

Mr. Coombs, Special Manager, System Open

Market Account

-2

6/8/71

Mr. Leonard, Assistant Secretary, Office

of the Secretary, Board of Governors

Mr. Coyne, Special Assistant to the Board

of Governors

Mr. Wernick, Adviser, 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 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, respec

tively

Messrs. Link, Parthemos, and Craven,

Senior Vice Presidents, Federal

Reserve Banks of New York, Richmond,

and San Francisco, respectively

Messrs. Willes, Hocter, Andersen, and

Green, Vice Presidents, Federal

Reserve Banks of Philadelphia, Cleve

land, St. Louis, and Dallas, respec

tively

Mr. Meek, Assistant Vice President,

Federal Reserve Bank of New York

Mr. Duprey, Senior Economist, Federal

Reserve Bank of Minneapolis

By unanimous vote, the minutes of actions taken at the

meeting of the Federal Open Market Committee held on May 11,

1971,

were approved.

-3

6/8/71

The memorandum of discussion for the meeting of the

Federal Open Market Committee held on May 11,

1971, was accepted.

By unanimous vote, the System open market transactions

in foreign currencies during the period May 11 through June 7,

1971, were approved,

ratified,

and confirmed.

By unanimous vote, a delay in the liquidation of out

standing System drawings on the National Bank of Belgium beyond

June 30, 1971,

was authorized.

By unanimous vote, renewal for a further period of three

months of the System drawing on the National Bank of Belgium

maturing on July 7,

1971,

By unanimous vote,

Government securities,

was authorized.

the open market transactions in

agency obligations,

and bankers'

accep

tances during the period May 11 through June 7, 1971, were

approved, ratified, and confirmed.

By unanimous vote,

the dollar limit specified in para

graph 2 of the continuing authority directive,

on Federal

Reserve Bank holdings of short-term certificates of indebtedness

purchased directly from the Treasury, was increased from $1 bil

lion to $2 billion.

As amended, paragraph 2 read as follows:

The Federal Open Market Committee authorizes and

directs the Federal Reserve Bank of New York, or, if

the New York Reserve Bank is closed, any other Federal

Reserve Bank, to purchase directly from the Treasury

for its own account (with discretion, in cases where

it seems desirable, to issue participations to one or

6/8/71

more Federal Reserve Banks) such amounts of special

short-term certificates of indebtedness as may be nec

sary from time to time for the temporary accommodation

of the Treasury; provided that the rate charged on such

certificates shall be a rate 1/4 of 1 per cent below

the discount rate of the Federal Reserve Bank of New

York at the time of such purchases, and provided

further that the total amount of such certificates

held at any one time by the Federal Reserve Banks

shall not exceed $2 billion.

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 is expanding

moderately in the current quarter, following the first

quarter surge that primarily reflected the resumption

of higher automobile production. The unemployment

rate remained high in May. Wage rates in most sectors

are continuing to rise at a rapid pace. in the first

four months of 1971 the consumer price index increased

at a slower pace than earlier, in considerable part

because of a decline in mortgage interest rates; the

rate of advance in wholesale prices of industrial com

modities, which had moderated in the first quarter,

stepped up again in April and May. The money stock

both narrowly and broadly defined expanded even more

rapidly in May than in April but growth in the bank

credit proxy remained moderate. Interest rates on

most types of market securities rose sharply further

during much of May, reflecting continuing uncertain

ties about domestic and international financial

prospects; more recently rates on long-term securities

have declined on balance, but mortgage rates have

risen. The U.S. merchandise trade balance, which was

in small surplus in the first quarter, worsened in April.

The deficit in the over-all balance of payments has

diminished since early May, when capital outflows were

swollen by expectations of changes in foreign exchange

6/8/71

rates, but it remains large. Differentials between

short-term interest rates in the United States and in

major foreign countries narrowed on balance in April

and May, but differentials between rates in the

United States and in the Euro-dollar market recently

have widened as rates in that market moved up sharply

in early May. 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, modera

tion of short-term capital outflows, and attainment of

reasonable equilibrium in the country's balance of

payments.

To implement this policy, the Committee seeks to

moderate growth in monetary aggregates over the months

ahead, taking account of developments in capital mar

kets. System open market operations until the next

meeting of the Committee shall be conducted with a

view to achieving bank reserve and money market con

ditions consistent with those objectives.

It was agreed that the next meeting of the Federal Open

Market Committee would be held in Washington, D.C., on Tuesday,

June 29, 1971, at 9:30 a.m.

The meeting adjourned.

Secretary