FOMC Minutes

Meeting of Federal Open Market Committee

July 27, 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, July 27, 1971, at 9:30 a.m.

PRESENT:

Mr. Burns, Chairman

Mr. Hayes, Vice Chairman

Mr. Brimmer

Mr. Clay

Mr. Daane

Mr. Kimbrel

Mr. Maisel

Mr. Mayo

Mr. Mitchell

Mr. Morris

Mr. Robertson

Mr. Sherrill

Messrs. Coldwell, Eastburn, and Swan, Alternate

Members of the Federal Open Market Committee

Messrs. Heflin, Francis, and MacLaury, Presidents

of the Federal Reserve Banks of Richmond,

St. Louis, and Minneapolis, respectively

Mr. Broida, Deputy Secretary

Mr. Bernard, Assistant Secretary

Mr. Hackley, General Counsel

Mr. Partee, Economist

Messrs. Axilrod, Garvy, Scheld, Solomon,

Taylor, and Tow, Associate Economists

Mr. Holmes, Manager, System Open Market

Account

Mr. Kenyon, Deputy Secretary, Office of the

Secretary, Board of Governors

Messrs. Altmann and Leonard, Assistant

Secretaries, Office of the Secretary,

Board of Governors

7/27/71

Mr. Cardon, Assistant to the Board of

Governors

Messrs. Coyne and O'Brien, Special Assistants

to the Board of Governors

Mr. Chase, Associate Director, Division

of Research and Statistics, 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 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. Parthemos and Craven, Senior Vice

Presidents, Federal Reserve Banks of

Richmond and San Francisco, respectively

Messrs. Bodner, Willes, Hocter, Andersen,

and Green, Vice Presidents, Federal

Reserve Banks of New York, Philadelphia,

Cleveland, St. Louis, and Dallas,

respectively

Mr. Kareken, Economic Adviser, Federal Reserve

Bank of Minneapolis

Messrs. Fieleke and Geng, Assistant Vice

Presidents, Federal Reserve Banks of

Boston and New York, respectively

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

ings of the Federal Open Market Committee on June 8 and June 29,

1971, were approved.

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The memoranda of discussion for the meetings of the Federal

Open Market Committee held on June 8 and June 29, 1971, were

accepted.

By unanimous vote, the System open market transactions in

foreign currencies during the period June 29 through July 26, 1971,

were approved, ratified, and confirmed.

By unanimous vote, renewal of the four System drawings on

the National Bank of Belgium maturing in the period August 10-26,

1971, was authorized.

By unanimous vote, the open market transactions in Govern

ment securities, agency obligations, and bankers' acceptances

during the period June 29 through July 26, 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 Com

mittee, to execute transactions in the System Account in accordance

with the following current economic policy directive:

The information reviewed at this meeting suggests

that moderate expansion in real output of goods and

services is continuing and that unemployment remains

substantial. Wage rates in most sectors are continuing

to rise at a rapid pace. The rate of advance in both

consumer prices and wholesale prices of industrial

commodities has stepped up again recently after moder

ating earlier in the year. In the second quarter

inflows of consumer-type time and savings funds at

banks and nonbank thrift institutions were large, but

below the unusually rapid first-quarter pace. Growth

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in bank credit and the broadly defined money stock

slowed in the second quarter, but the rate of expansion

in the narrowly defined money stock increased. In July,

according to partial data, it appears that both bank

credit and the narrowly defined money stock are growing

at rates close to those of the second quarter, but that

expansion in broadly defined money is slowing. While

interest rates on most types of long-term market securi

ties have changed relatively little on balance in recent

weeks, short-term interest rates have risen further. In

mid-July Federal Reserve discount rates were increased by

one-quarter of a percentage point to 5 per cent. The

deficit in the U.S. balance of payments remained extraor

dinarily large in the second quarter, mainly reflecting

capital outflows related to expectations of shifts in

foreign exchange rates and the development of a substan

tial deficit in the merchandise trade balance. In light

of the foregoing developments, it is the policy of the

Federal Open Market Committee to foster financial condi

tions conducive to sustainable economic growth, while

encouraging an orderly reduction in the rate of inflation,

moderation of short-term capital outflows, and attainment

of reasonable equilibrium in the country's balance of

payments.

To implement this policy, taking account of the

current Treasury financing and of developments in capital

markets, the Committee seeks to achieve more moderate

growth in monetary aggregates over the months ahead.

System open market operations until the next meeting of

the Committee shall be conducted with a view to achieving

bank reserve and money market conditions consistent with

those objectives.

It was agreed that the next meeting of the Federal Open

Market Committee would be held on Tuesday, August 24, 1971, at

9:30 a.m.

The meeting adjourned.

Deputy Secretary