FOMC Minutes

Meeting of Federal Open Market Committee

July 18, 1972

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, DC., on Tuesday, July 18, 1972, at 9:30 a.m.

PRESENT:

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Burns, Chairman

Hayes, Vice Chairman

Brimmer

Bucher

Coldwell

Daane

Eastburn

MacLaury

Robertson

Sheehan

Winn

Messrs. Heflin and Mayo, Alternate Members of

the Federal Open Market Committee

Messrs. Morris, Kimbrel, and Clay, Presidents of

the Federal Reserve Banks of Boston, Atlanta,

and Kansas City, respectively

Mr. Broida, Deputy Secretary

Messrs. Altmann and Bernard, Assistant

Secretaries

Mr. Hackley, General Counsel

Mr. O'Connell, Assistant General Counsel

Mr. Partee, Senior Economist

Mr. Axilrod, Economist (Domestic Finance)

Mr. Solomon, Economist (International Finance)

Messrs. Bryant, Gramley, Green, Hersey, and

Hocter, Associate Economists

Mr. Holmes, Manager, System Open Market Account

Mr. Coombs, Special Manager, System Open Market

Account

7/18/72

Mr. Melnicoff, Deputy Executive Director,

Board of Governors

Mr. Coyne, Special Assistant to the Board of

Governors

Messrs. Pierce, Wernick, and Williams,

Advisers, Division of Research and

Statistics, Board of Governors

Mr. Pizer, Adviser, Division of International

Finance, Board of Governors

Messrs. Kiley and Ring, Associate Director

and Assistant Director, respectively,

Division of Federal Reserve Ban

Operations, Board of Governors 1/

Mr. Struble, Economist, Division of Research

and Statistics, Board of Governors

Mrs. Rehanek, Secretary, Office of the

Secretary, Board of Governors

Messrs. Leonard and Merritt, First Vice

Presidents, Federal Reserve Banks of

St. Louis and San Francisco, respectively

Messrs. Parthemos, Taylor, Scheld, Tow, and

Craven, Senior Vice Presidents, Federal

Reserve Banks of Richmond, Atlanta, Chicago,

Kansas City, and San Francisco, respectively

Mr. Garvy, Economic Adviser, Federal Reserve

Bank of New York

Mr. Jordan, Vice President, Federal Reserve Bank

of St. Louis

Mr. Fieleke, Assistant Vice President and

Economist, Federal Reserve Bank of Boston

Mr. Kaminow, Research Officer and Economist,

Federal Reserve Bank of Philadelphia

Mr. Duprey, Senior Economist, Federal Reserve

Bank of Minneapolis

Mr. Sandberg, Manager, Acceptance and Securities

Departments, Federal Reserve Bank of New York

By unanimous vote, the action of members of the Federal Open

Market Committee on July 6, 1972, amending the operational paragraph

of the current economic policy directive issued on June 20, 1972, by

1/ Entered meeting at point indicated.

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7/18/72

the addition of a reference to international developments was

1/

ratified.

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

ing of the Federal Open Market Committee on May 23, 1972, were

approved.

The memorandum of discussion for the meeting of the Federal

Open Market Committee on May 23, 1972, was accepted.

By unanimous vote, the System open market transactions in

foreign currencies during the period June 20 through July 17, 1972,

were approved, ratified, and confirmed.

By unanimous vote, renewal for further periods of 3 months

of the 8 System drawings on the National Bank of Belgium maturing

in the period August 4-25, 1972, was approved.

By unanimous vote, renewal for further periods of 3 months

of the 2 System drawings on the Swiss National Bank maturing on

August 10 and 17, 1972, was approved.

By unanimous vote, renewal for further periods of 3 months

of the System drawings of Swiss and Belgian francs on the Bank for

International Settlements maturing on August 11 and August 18, 1972,

respectively, was approved.

1/ With this amendment, the operational paragraph read as follows:

To implement this policy, while taking account of possible

Treasury financing, developments in capital markets, and inter

national developments, the Committee seeks to achieve bank

reserve and money market conditions that will support moderate

growth in monetary aggregates over the months ahead.

7/18/72

By unanimous vote, renewal for a further period of 3 months

of the System drawing on the Bank of England maturing on August 17,

1972, was approved.

By unanimous vote, the open market transactions in Government

securities, agency obligations, and bankers' acceptances during the

period June 20 through July 17, 1972, were approved, ratified, and

confirmed.

With Mr. Coldwell dissenting, the Federal Reserve Bank of

New York was authorized and directed, until otherwise directed by

the Committee, to execute transactions for 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 increased at a

faster rate in the second quarter than in the two pre

ceding quarters. In June the unemployment rate declined,

but it was still substantial. Wholesale prices of farm

and food products advanced appreciably further in June

and the rise in prices of industrial commodities remained

substantial. Recent data suggest moderation in the pace

of advance in wage rates. In foreign exchange markets,

following disturbances leading to a floating of the pound

sterling, the dollar has come under pressure and the

reserves of European central banks have increased sharply.

In May, the excess of merchandise imports over exports

remained large, though a little less than in April.

Growth in the narrowly defined money stock was

relatively slow in May and June, but preliminary weekly

data suggest a pickup in early July. Growth in the

broadly defined money stock was more substantial as

inflows of consumer-type time and savings deposits to

banks remained strong. Expansion in the bank credit

proxy slowed sharply in June as U.S. Government depos

its declined markedly. In recent weeks, long-term

interest rates have changed little; rates in short

term markets have advanced, except for those on

shorter-maturity Treasury bills.

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In light of the foregoing developments, it is the

policy of the Federal Open Market Committee to foster

financial conditions conducive to 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, while taking account

of the forthcoming Treasury financing, developments

in capital markets, and international developments,

the Committee seeks to achieve bank reserve and money

market conditions that will support moderate growth

in monetary aggregates over the months ahead.

Messrs. Kiley and Ring entered the meeting.

By unanimous vote, the procedures for allocation of secu

rities in the System Open Market Account were revised to read as

follows:

1. Securities in the System Open Market Account

shall be reallocated on the last business day of each

month by means of adjustments proportionate to the

adjustments that would have been required to equalize

approximately the average ratios of gold holdings to

note liabilities of the 12 Federal Reserve Banks based

on the ratios of gold to notes for the most recent five

business days.

2. Until the next reallocation the Account shall

be apportioned on the basis of the ratios determined in

paragraph 1, except that temporary interim adjustments

may be made in the apportionments for two or more Banks

when desirable in the judgment of the Director of the

Board's Division of Federal Reserve Bank Operations and

the Manager of the System Open Market Account.

3. Profits and losses on the sale of securities

from the Account shall be allocated on the day of

delivery of the securities sold on the basis of each

Bank's current holdings at the opening of business on

that day.

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It was agreed that the next meeting of the Federal Open

Market Committee would be held on Tuesday, August 15, 1972, at

9:30 a.m.

The meeting adjourned.

Deputy Secretary