FOMC Minutes

Meeting of Federal Open Market Committee

August 20,

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.

PRESENT:

C.,

on Tuesday,

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Burns, Chairman1/

Hayes, Vice Chairman

Black

Bucher

Clay

Holland

Kimbrel

Mitchell

Sheehan

Wallich

Winn

Mr.

August 20,

1974,

at 9:30 a.m.

Messrs. MacLaury and Morris, Alternate

Members of the Federal Open Market

Committee

Messrs. Eastburn and Balles, Presidents of the

Federal Reserve Banks of Philadelphia and

San Francisco, respectively

Mr.

Broida, Secretary

Mr. Altmann, Deputy Secretary

Mr. Bernard, Assistant Secretary2/

Mr. O'Connell, General Counsel

Mr. Partee, Senior Economist

Mr. Axilrod, Economist (Domestic Finance)

Messrs. Brandt,2/ Bryant, Doll,2/ Gramley,

Hocter,2/ Parthemos, 2/ Pierce,2/ and

Reynolds,2/ Associate Economists

1/

Entered meeting at point indicated.

2/

Attended first part of meeting only.

2/

8/20/74

Mr. Coombs, Special Manager, System Open

Market Account

Mr. Sternlight, Deputy Manager, System Open

Market Account

Mr. Coyne, Assistant to the Board of

Governors

Mr. Wonnacott,1/ Associate Director,

Division of International Finance,

Board of Governors

Messrs. Keir 1 / and Wernick,1/ Advisers,

Division of Research and Statistics,

Board of Governors

Mr. Wendel,1/ Assistant Adviser, Division

of Research and Statistics, Board of

Governors

Miss Pruitt,1/ Economist, Open Market

Secretariat, Board of Governors

Mrs. Ferrell,1/ Open Market Secretariat

Assistant, Board of Governors

Messrs. Baughman, Leonard, and Plant, First

Vice Presidents, Federal Reserve Banks

of Chicago, St. Louis, and Dallas,

respectively

Messrs. Eisenmenger,1/ Scheld,1/ and Sims, 1/

Senior Vice Presidents, Federal Reserve

Banks of Boston, Chicago, and San

Francisco, respectively

Mr. Garvy,1/ Vice President and Senior

Adviser, Federal Reserve Bank of

New York

Messrs. Jordan1/ and Green,1/Vice Presidents,

Federal Reserve Banks of St. Louis and

Dallas, res ectively

Messrs. Kaminow 1/ and Kareken,1/ Economic

Advisers, Federal Reserve Banks of

Philadelphia and Minneapolis, respectively

Mr. Ozog,1/ Manager, Acceptances and Securities,

Federal Reserve Bank of New York

1/

Attended first part of meeting only.

8/20/74

The Secretary noted that Chairman Burns had been unavoidably

detained, and that until his arrival Vice Chairman Hayes would serve

as Acting Chairman.

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

of the Federal Open Market Committee held on July 16, 1974, were

approved.

The memoranda of discussion for the telephone conference

meeting of the Federal Open Market Committee held on July 5, 1974,

and for the meeting of the Committee held on July 16, 1974, were

accepted.

By unanimous vote, the System open market transactions in

foreign currencies during the period July 16 through August 14, 1974,

were approved, ratified, and confirmed.

Chairman Burns joined the meeting prior to the following

action.

By unanimous vote, the open market transactions in

Government securities, agency obligations, and bankers' acceptances

during the period July 16 through August 19, 1974, were approved,

ratified, and confirmed.

The following action was taken during the part of the

meeting in which staff attendance was limited.

8/20/74

By unanimous vote, 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:

The information reviewed at this meeting suggests

that real output of goods and services is changing little

in the current quarter, following the first-half decline,

and that price and wage increases are continuing large.

In July industrial production was unchanged from the

May-June level, and nonfarm payroll employment declined

further. The unemployment rate edged up to 5.3 per cent.

Wholesale prices of farm and food products rose sharply,

after having declined for 4 months, and increases among

industrial commodities continued widespread and extraordi

narily large.

The new Administration has indicated that it will

give high priority to combating inflation and that it

will convene a summit meeting of the nation's economic

leaders to that end.

In recent weeks the dollar has appreciated some

what further against leading foreign currencies. U.S.

bank lending to foreign borrowers, especially in Japan,

has apparently continued large, but inflows of foreign

capital, particularly from oil-exporting countries,

have also been large. The foreign trade deficit,

although smaller in June than in May, widened substan

tially from the first to the second quarter as the value

of petroleum imports increased.

The narrowly defined money stock rose only slightly in

July, after having grown at an annual rate of 6 per cent

over the first half of the year. Net inflows at banks

of time deposits other than money market CD's slowed

somewhat in July, and deposit experience at nonbank insti

tutions worsened materially in July and early August.

8/20/74

-5

Growth in business loans and in total bank credit was

substantial in July, although the pace of expansion

slackened after the early part of the month. To finance

loan growth, banks reduced their holdings of Treasury

securities and increased their outstanding volume of

large-denomination CD's by substantial amounts. Interest

rates on most private market instruments have declined

a little in recent weeks, and in association with some

easing of tensions in financial markets, yield spreads

between prime- and lower-quality issues--which had widened

sharply--have narrowed. Yields on Government securities,

particularly Treasury bills, have increased, in part

because new Treasury offerings relieved a market shortage

of such securities.

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.

To implement this policy, while taking account of

developments in domestic and international financial

markets, the Committee seeks to achieve bank reserve and

money market conditions consistent with moderate growth

in monetary aggregates over the months ahead.

It was agreed that the next meeting of the Committee would

be subject to the call of Chairman Burns.

Secretary's note: On August 22, 1974, the members

were advised that the Chairman had called for a

meeting of the Committee to be held on Wednesday,

September 11, 1974, at 9:30 a.m.

The meeting adjourned.

Secretary