FOMC Minutes

Meeting of Federal Open Market Committee

September 21, 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, September 21, 1971, at 9:30 a.m.

As indicated below, only a limited number of staff members were in

attendance during the first part of the meeting.

PRESENT:

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Burns, Chairman

Hayes, Vice Chairman

Brimmer

Clay

Daane

Kimbrel

Maisel

Mayo

Mitchell

Morris

Robertson

Sherrill

Messrs. Coldwell, Eastburn, Swan, and Winn,

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. Holland, Secretary

Mr. Broida, Deputy Secretary

Mr. Molony, Assistant Secretary

Mr. Hackley, General Counsel

Mr. Partee, Economist

Messrs. Axilrod, Hersey, and Solomon,

Associate Economists

Messrs. Bryant and Gemmill, Associate

Advisers, Division of International

Finance, Board of Governors

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Messrs. Bodner and Sternlight, Vice Presidents,

Federal Reserve Bank of New York

By unanimous vote, the System open market transactions in

foreign currencies during the period August 24 through September 20,

1971, were approved, ratified, and confirmed.

By unanimous vote, renewal of the six System drawings on

the National Bank of Belgium maturing in the period October 7-28,

1971, was authorized.

It was agreed that the authorization for the lending of

Government securities from the System Open Market Account, contained

in paragraph 3 of the continuing authority directive with respect to

open market operations, should be retained at this time.

By unanimous vote, the Committee's "Guide for Emergency

Operations," initially approved on May 29, 1962, was amended in the

manner recommended in Mr. Maisel's memorandum of September 14, 1971,

primarily for the purpose of removing references to "due bills."

By unanimous vote, the resolution authorizing certain actions

by the Federal Reserve Banks during an emergency, which had last been

revised on July 21, 1970, was amended to read as follows:

RESOLUTION OF FEDERAL OPEN MARKET COMMITTEE AUTHORIZING

CERTAIN ACTIONS BY FEDERAL RESERVE BANKS DURING AN EMERGENCY

The Federal Open Market Committee hereby authorizes

each Federal Reserve Bank to take any or all of the

actions set forth below during war or defense emergency

when such Federal Reserve Bank finds itself unable after

reasonable efforts to be in communication with the

Federal Open Market Committee (or with the Interim Com

mittee acting in lieu of the Federal Open Market Commit

tee) or when the Federal Open Market Committee (or such

Interim Committee) is unable to function.

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(1) Whenever it deems it necessary in the light

of economic conditions and the general credit situation

then prevailing (after taking into account the possi

bility

of providing necessary credit through advances

secured by direct obligations of the United States

under the last paragraph of section 13 of the Federal

Reserve Act), such Federal Reserve Bank may purchase

own

and sell obligations of the United States for its

account, either outright or under repurchase agree

ment, from and to banks,

dealers or other holders of

such obligations.

(2) Such Federal Reserve Bank may in its discre

tion purchase special certificates of indebtedness

directly from the United States in such amounts as may

be needed to cover overdrafts in the general account

of the Treasurer of the United States on the books of

such Bank or for the temporary accommodation of the

Treasury, but such Bank shall take all steps practi

cable at the time to insure as far as possible that

the amount of obligations acquired directly from the

United States and held by it, together with the amount

of such obligations so acquired and held by all other

Federal Reserve Banks, does not exceed S5 billion at

any one time.

(3)

Such Federal Reserve Bank may engage in

operations of the types specified in the Committee's

authorization for System foreign currency operations

when requested to do so by an authorized official of

the U.S. Treasury Department; provided, however, that

such Bank shall take all steps practicable at the

time to insure as far as possible that, in light of

the information available on other System foreign

currency operations, its own operations do no:

result in the aggregate in breaching any of the sev

eral dollar limits specified in the authorization.

The following persons then entered the meeting:

Mr. Bernard, Assistant Secretary

Messrs.

Eisenmenger,

Gramley,

Scheld,

and

Tow, Associate Economists

Mr. Altmann, Assistant Secretary, Office of

the Secretary, Board of Governors

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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. 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. Parthemos, Andersen, and Craven, Senior

Vice Presidents, Federal Reserve Banks of

Richmond, St. Louis, and San Francisco,

respectively

Messrs. Willes, Hocter, Brandt, Nelson, and

Green, Vice Presidents, Federal Reserve Banks

of Philadelphia, Cleveland, Atlanta,

Minneapolis, and Dallas, respectively

Mr. Schadrack, Adviser, Federal Reserve Bank of

New York

Mr. Cooper, Manager, Securities and Acceptance

Departments, Federal Reserve Bank of New York

By unanimous vote, the open market transactions in Government

securities, agency obligations, and bankers' acceptances during the

period August 24 through September 20, 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 the Government's new economic program has reduced

inflationary expectations and has improved prospects

for higher rates of growth in real economic activity

and employment. In the current quarter, however, real

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output of goods and services is expanding modestly and

unemployment remains substantial. Prior to the imposi

tion of the 90-day freeze, prices and wages were rising

rapidly on average. In August inflows of consumer-type

time and savings funds to nonbank thrift institutions

moderated and inflows to banks remained at a reduced

rate. Growth in the narrowly defined money stock,

which had been rapid through July, slowed sharply in

August; and growth in broadly defined money continued

to slacken. However, the rate of expansion in the bank

credit proxy stepped up, mainly reflecting a marked rise

in U.S. Government deposits. Market interest rates,

which declined sharply following the announcement of the

new program, have since fluctuated irregularly. The

U.S. balance of payments continues to be in a position

of substantial basic deficit. Speculative capital out

flows have diminished recently. Most major foreign

currencies are trading in the exchange markets at rates

against the dollar a few per cent higher than on Aug

ust 13. Negotiations have begun on additional measures

to reduce payments imbalances and on other improvements

in the international monetary system. In light of the

foregoing developments, it is the policy of the Federal

Open Market Committee to foster financial conditions

consistent with the aims of the new governmental program,

including sustainable real economic growth and increased

employment, abatement of inflationary pressures, and

attainment of reasonable equilibrium in the country's

balance of payments.

To implement this policy, the Committee seeks to

achieve moderate growth in monetary and credit aggre

gates, 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 that objective.

It was agreed that the next meeting of the Federal Open

Market Committee would be held on Tuesday, October 19, 1971, at

9:30 a.m.

The meeting adjourned.

Secretary