FOMC Minutes

Meeting of Federal Open Market Committee

July 16,

1974

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 16, 1974, at 9:30 a.m.

PRESENT:

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Burns, Chairman

Hayes, Vice Chairman

Black

Bucher

Clay

Holland

Kimbrel

Mitchell

Sheehan

Wallich

Winn

Messrs. Coldwell, Mayo, and Morris, Alternate

Members of the Federal Open Market Committee

Messrs. Eastburn, Francis, and Balles, Presidents

of the Federal Reserve Banks of Philadephia,

St. Louis, and San Francisco, respectively

Mr. Broida, Secretary

Mr. Altmann, Deputy Secretary

Mr. Bernard, Assistant Secretary

Mr. O'Connell, General Counsel

Mr. Partee, Senior Economist

Mr. Axilrod, Economist (Domestic Finance)

Messrs. Brandt, Davis, Doll, Gramley,

Hocter, Pierce, and Reynolds,

Associate Economists

7/16/74

Mr. Holmes, Manager, System Open Market

Account

Mr. Coombs, Special Manage:, System Open

Market Account

Mr. Coyne, Assistant to the Board of

Governors

Mr. Wonnacott, Associate Director, Division

of International Finance, Board of

Governors

Mr. Williams, Adviser, Division of Research

and Statistics, Board of Governors

Mr. Wendel, Assistant Adviser, Division of

Research and Statistics, Board of

Governors

Miss Pruitt, Economist, Open Market Secretariat,

Board of Governors

Mrs. Ferrell, Open Market Secretariat Assistant,

Board of Governors

Mr. Van Nice, First Vice President, Federal

Reserve Bank of Minneapolis

Messrs. Eisenmenger, Boehne, Scheld, and

Sims, Senior Vice Presidents, Federal

Reserve Banks of Boston, Philadelphia,

Chicago, and San Francisco, respectively

Messrs. Snellings, Jordan, and Green, Vice

Presidents, Federal Reserve Banks of

Richmond, St. Louis, and Dallas,

respectively

Mr. Kareken, Economic Adviser, Federal Reserve

Bank of Minneapolis

Ms. Tschinkel, Manager, Securities Department,

Federal Reserve Bank of New York

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

of the Federal Open Market Committee held on June 18, 1974, were

approved.

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The memorandum of discussion for the meeting of the Federal

Open Market Committee held on June 18, 1974, was accepted.

By unanimous vote, the System open market transactions in

foreign currencies during the period June 18 through July 15, 1974,

were approved, ratified, and confirmed.

By unanimous vote, renewal for further periods of 3 months

of System drawings on the National Bank of Belgium, the Swiss

National Bank, and the Bank for International Settlements, maturing

in the period August 2-15, 1974, was authorized.

A proposed letter from Chairman Burns to the Secretary of

the Treasury, concerning possible use by the Bank of Italy of its

swap line with the Federal Reserve, was approved.

By unanimous vote, the open market transactions in

Government securities, agency obligations, and bankers' acceptances

during the period June 18 through July 15, 1974, were approved,

ratified, and confirmed.

With Mr. Bucher 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 domestic policy directive:

7/16/74

The information reviewed at this meeting suggests that

real output of goods and services changed little in the

second quarter and that no significant expansive forces

appear to be emerging. The over-all rate of price rise,

while very large, was not quite so rapid in the second

as in the first quarter, but the advance in wage rates

accelerated. In June industrial production was unchanged,

following 2 months of moderate advance, while nonfarm

payroll employment edged down. The unemployment rate

remained at 5.2 per cent. Wholesale prices of farm and

food products declined substantially further, but increases

among industrial commodities continued widespread and

extraordinarily large.

Since mid-May the dollar has appreciated somewhat

against leading foreign currencies. In June there was

a large increase in foreign official assets in the United

States, mainly reflecting investments by oil-exporting

countries. The foreign trade deficit increased sharply

in May, as exports declined and imports rose further.

Growth in the narrowly defined money stock was

somewhat more rapid in June than in May; growth during

the second quarter was close to the 7 per cent first

quarter pace. Net inflows of consumer-type time deposits

at banks and at nonbank thrift institutions increased in

June, but deposit experience at the nonbank institutions

deteriorated late in the month. Growth in business loans

and in total bank credit slowed in June, and banks added

much less to their outstanding volume of large-denomination

CD's than in April and May. Private market interest rates

have risen substantially in recent weeks, and in association

with uneasy conditions in financial markets, yield spreads

between prime and lower quality issues have widened. Yields

on long-term Government securities have increased relatively

little, and those on Treasury bills have declined somewhat.

In light of the foregoing developments, it is the

policy of the Federal Open Market Committee to foster

financial conditions conducive to resisting inflationary

pressures, supporting a resumption of real economic growth,

and achieving equilibrium in the country's balance of

payments.

7/16/74

To implement this policy, while taking account of

the forthcoming Treasury refunding and of developments

in domestic and international financial markets, the

Committee seeks to achieve bank reserve and money

market conditions that would moderate growth in monetary

aggregates over the months ahead.

By unanimous vote, the guidelines for the conduct of System

operations in Federal agency issues were amended, effective imme

diately,

to delete guidelines

numbered 4 and 7,

and to renumber

the remaining guidelines as 4, 5 and 6.

By unanimous vote, paragraph 1(b) of the Authorization

for Domestic Open Market Operations was amended, effective

immediately, to read as follows:

(b) To buy or sell in the open market, from or to

acceptance dealers and foreign accounts maintained at

the Federal Reserve Bank of New York, on a cash, regular,

or deferred delivery basis, for the account of the Federal

Reserve Bank of New York at market discount rates, prime

bankers' acceptances with maturities of up to nine months

at the time of acceptance that (1) arise out of the current

shipment of goods between countries or within the United

States, or (2) arise out of the storage within the United

States of goods under contract of sale or expected to move

into the channels of trade within a reasonable time and

that are secured throughout their life by a warehouse

receipt or similar document conveying title to the under

lying goods; provided that the aggregate amount of bankers'

acceptances held at any one time shall not exceed $500 million.

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It was agreed that the next meeting of the Committee would

be held on Tuesday, August 20, 1974, at 9:30 a.m.

The meeting adjourned.

Secretary