FOMC Minutes

Meeting of Federal Open Market Committee

May 20,

1975

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,

May 20,

1975,

at

9:30 a. m.

PRESENT:

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Burns, Chairman

Hayes, Vice Chairman

Baughman

Bucher

Coldwell

Eastburn

Holland

MacLaury

Mayo

Mitchell

Wallich

Messrs. Balles, Black, Francis, and Winn,

Alternate Members of the Federal Open

Market Committee

Messrs. Clay, Kimbrel, and Morris,

Presidents of the Federal Reserve Banks

of Kansas City, Atlanta, and Boston,

respectively

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

1/

Broida, Secretary

Altmann,1/ Deputy Secretary

Bernard,1/ Assistant Secretary

O'Connell, General Counsel

Partee, Senior Economist

Axilrod,1/ Economist (Domestic Finance)

Gramley, 1/Economist (Domestic Business)

Solomon,1/ Economist (International Finance)

Entered meeting at point indicated.

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Messrs. Boehne,1/ Bryant,1/

Davis 1/

Green,1/ Kareken,1/ Reynolds,1/

Scheld,1/ Associate Economists

and

Mr.

Sternlight,

Operations

Mr.

Pardee, Deputy Manager for Foreign

Operations

Mr.

Deputy Manager for Domestic

Coyne,1/Assistant

to the Board of

Governors

Mr. Rippey,2/ Assistant to the Board of

Governors

Mr. Keir,1/ Adviser, Division of Research

and Statistics, Board of Governors

Mrs. Parar,1/ Economist, Open Market

Secretariat, Board of Governors

Mrs. Ferrell,1/ Open Market Secretariat

Assistant, Board of Governors

Messrs.

Eisenmenger,1/Parthemos,1/Jordan,1/

and Doll,1/ Senior Vice Presidents,

Federal Reserve Banks of Boston, Richmond,

St. Louis, and Kansas City, respectively

Messrs. Hocter 1/ and Brandt,1/ Vice Presidents,

Federal Reserve Banks of Cleveland and

Atlanta

Mr. Keran,1/ Director of Research, Federal

Reserve Bank of San Francisco

Mr. Meek,1/ Monetary Adviser, Federal

Reserve Bank of New York

With Mr.

Bucher dissenting,

the Committee decided to decline

to comply with the request of April 11,

Patman,

1975, from Congressman Wright

Chairman of the Subcommittee on Domestic Monetary Policy of

the House Committee on Banking,

Currency and Housing,

randa of discussion at FOMC meetings in the years

1/

2/

Entered meeting at point indicated.

Left meeting at point indicated.

for the memo

1971-74, inclusive.

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Secretary's Note: On June 3, 1975, the following

letter was sent to Congressman Patman over the

signature of Chairman Burns:

Dear Mr. Chairman:

Your request for the memoranda of discussion for meetings

of the Federal Open Market Committee ("FOMC") in the years

1971-74, inclusive, has been considered carefully by the

Committee. In this connection, the FOMC has given full and

deliberate consideration to the oversight responsibility

that the Congress in general and your Subcommittee in partic

ular have with respect to its functions and operations.

I might note at the outset that, apart from the memoranda

which you request, there are three regularly available sources

of information about the operations of the FOMC. One consists

of weekly statistical releases published by the Board, which

promptly and fully disclose the results of the Committee's open

market operations. The most important of such weekly releases

are the Federal Reserve Statement (H.4.1), the Weekly Summary

of Banking and Credit Measures (H.9), and Money Stock Measures

(H.6).

A second source is the record of policy actions, which is

prepared pursuant to a requirement of the Federal Reserve Act.

These policy records disclose the Committee's intentions with

respect to open market policy, as reflected in the actions

reported. They include all votes, by name, cast by members

of the Committee in connection with the determination of open

market policies; the reasons underlying the policy actions,

including descriptions of then-current and prospective

economic developments and of conditions in domestic and

international financial markets; and statements of the reasons

for any dissenting votes.

A third source, the minutes of actions, indicates all

votes taken by the FOMC--including those relating to procedural

matters as well as those relating to policy questions. The

minute entries for policy actions are made available for public

inspection on the same schedule as the policy records; the

minute entries for most other actions are made available promptly

after the meeting.

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To this copious body of information concerning the

operations of the FOMC, the memoranda of discussion add

essentially one further type of material: reports of the

deliberations through which the Committee reaches its

decisions on policy and procedural matters. As you are

aware, there is no legal requirement that such memoranda

of FOMC meetings be prepared. However, they have proved

valuable to the FOMC and its staff in connection with the

ongoing work of the Committee, and we believe they consti

tute a useful historical record. For these reasons, they

are maintained by the Committee and made available to the

public after a time lag determined by the FOMC.

The memoranda of discussion reflect the unfettered,

spontaneous expressions of FOMC member views and opinions.

Some of these expressions may be put forth primarily to elicit

discussion and clarification of issues rather than as statements

of firmly held views. Some may turn out to be inconclusive

with respect to the FOMC's ultimate decisions, and others at

odds with those decisions. All such expressions do, however,

contribute to the decisional process.

The informal "give and take" debate at FOMC meetings, as

substantially reflected in the memoranda of discussion, in

volves the decision-making process utilized by the legislative,

executive, and judicial branches of our Government since the

founding of the Republic. Each branch of Government daily

encounters the situation where individual opinions and advice,

expressed and conveyed in the decision-making process, are

re-thought, altered, or reversed on the hearing of opinions

and views of other participants. Premature public exposure

of such deliberations, whether involving legislative,

executive, judicial, or administrative bodies, preceding as

they do the official decisions and actions of such bodies,

would quickly and certainly make such decisional process

sterile. If the FOMC memoranda of discussion were to be

released prematurely, the Committee would be faced with the

choice of permitting a destructive diminution of candor in

its deliberations or of preserving the members' ability to

speak their minds freely and fully by terminating the prepara

tion of such memoranda. Neither alternative would be in the

public interest.

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-5

In addition, the matters commonly discussed at FOMC

meetings include ongoing or prospective transactions in

foreign exchange markets, the premature disclosure of which

could have both immediate and longer-term adverse impact on

international flows of funds. Moreover, references are

frequently made to highly sensitive matters involving, or

statements by or about, foreign central banks and governments.

Clearly, continued FOMC access to such important and relevant

communications must not be jeopardized by even a suggestion

of untimely dissemination.

In view of these considerations, the Committee has concluded

that it must respectfully decline to comply with your request

for the 1971-74 memoranda of discussion.

The Committee's decision, premised in major part on its

need to preserve the practice of free and uninhibited member

contribution to discussions, reflects a legal position the

concept of which was reaffirmed by the United States Supreme

Court as recently as one month ago in the case of NLRB v. Sears,

Roebuck, & Co., 95 S Ct. 1504, 1516 (1975).

Justice White,

speaking for the Court with respect to the need to protect

the decision-making processes of government agencies, cited

the Court's earlier position that "...experience teaches that

those who expect public dissemination of their remarks may well

temper candor with a concern for appearances...to the detriment

of the decision-making process."

As Chairman of the Federal Open Market Committee I endorse

whole-heartedly the foregoing principle.

Mr. Rippey left and staff members who were not present at

the outset entered the meeting prior to the following actions.

By unanimous vote, the Committee ratified the action taken

by members on April 17,

1975,

revising the procedures for allocation

of securities in

the System Open Market Account to read as follows,

effective May 1,

1975:

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1.

Securities in

the System Open Market Account shall

be reallocated at least once each year as determined by the

Board's Division of Federal Reserve Bank Operations and the

Manager of the System Open Market Account for the purpose

of settling Interdistrict clearings and approximately

equalizing for each Federal Reserve Bank the ratio of gold

certificate holdings to Federal Reserve notes outstanding.

2.

Until the next reallocation, the Account shall be

apportioned on the basis of the ratios determined in

Paragraph 1.

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.

By unanimous vote,

the Committee ratified the action taken

by members on April 30, 1975, increasing from $3 billion to $4

billion the limit specified in paragraph 1(a) of the Authorization

for Domestic Open Market Operations on changes between meetings

in System Account holdings of U.S.

Government and Federal agency

securities, effective April 30, 1975, through the close of

business May 20, 1975.

By unanimous vote, the Committee decided to maintain the

dollar limit specified in paragraph 1(a) of the Authorization for

Domestic Open Market Operations at $4 billion for the period

through the close of business June 17, 1975.

By unanimous vote,

the minutes of actions taken at the

meeting of the Federal Open Market Committee on April 14-15, 1975,

were approved.

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The memorandum of discussion for the meeting of the Federal

Open Market Committee on March 18, 1975, was accepted.

By unanimous vote, the System open market transactions

in foreign currencies during the period April 15 through May

19,

1975, were approved, ratified, and confirmed.

By unanimous vote, the open market transactions in

Government securities, agency obligations, and bankers' acceptances

during the period April 15 through May 19, 1975, 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 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--after having

fallen sharply for two quarters--is declining much less

In April the pace of

rapidly in the current quarter.

the decline in industrial production moderated consid

erably further, and total employment rose. However,

the unemployment rate increased again, from 8.7 to 8.9

per cent, as the civilian labor force increased consid

erably. Average wholesale prices of industrial commodi

ties changed little in April, as in March; prices of farm

and food products rose sharply, following several months

of large decreases. The advance in average wage rates

so far this year has been considerably less rapid than the

increase during the second half of 1974.

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The foreign exchange value of the dollar has

declined somewhat since mid-April, but it is still

above the low of early March. U.S. imports fell

sharply in the first quarter, and the foreign trade

balance was in substantial surplus, in contrast to the

deficits of preceding quarters. Net outflows of funds

through banks were large in the first quarter, as loans

to foreigners continued to increase while liabilities

to foreigners declined.

Both M1 and M 2 grew moderately in April, but M3

grew more rapidly as inflows of deposits to nonbank

thrift institutions remained substantial. Business

demands for short-term credit remained weak, both at

banks and in the commercial paper market, while demands

in the long-term market continued strong. Since mid

April short-term market interest rates have declined

somewhat. Most longer-term yields have changed little

on balance, and mortgage rates have risen. Federal

Reserve discount rates were reduced from 6-1/4 to 6

per cent in mid-May.

In light of the foregoing developments, it is

the policy of the Federal Open Market Committee to

foster financial conditions conducive to stimulating

economic recovery, while resisting inflationary pres

sures and working toward 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 maintain about the pre

vailing money market conditions over the period immedi

ately ahead, provided that monetary aggregates generally

appear to be growing within currently acceptable short

run ranges of tolerance.

It was agreed that the next meeting of the Committee would

be held on Monday and Tuesday, June 16 and 17, 1975.

The meeting adjourned.

Secretary