FOMC Minutes

Meeting of Federal Open Market Committee

August 19,

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, August 19, 1975, at

9:30 a.m.

PRESENT:

Burns, Chairman

Volcker, Vice Chairman

Baughman

Bucher

Coldwell

Eastburn

Holland

Jackson

MacLaury

Mayo

Mr.

Mitchell

Mr. Wallich

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Messrs. Balles 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. Broida, Secretary

Mr. Altmann, Deputy Secretary

Mr. Bernard, Assistant Secretary

Mr. O'Connell, General Counsel

Mr. Guy, Deputy General Counsel

Mr. Partee, Senior Economist

Mr. Gramley, Economist (Domestic Business)

Messrs. Bryant, Green, Kareken, Reynolds, and

Scheld, Associate Economists

8/19/75

Mr. Holmes, Manager, System Open Market Account

Mr. Pardee, Deputy Manager for Foreign

Operations

Mr. Coyne, Assistant to the Board of

Governors

Mr. Brenneman,1 / Special Assistant to the

Board of Governors

Mr. McWhirter,2/ Associate Director, Division

of Federal Reserve Bank Operations, Board

of Governors

Mr. Keir, Adviser, Division of Research and

Statistics, Board of Governors

Mr. Struble, Chief, Government Finance Section,

Division of Research and Statistics, Board

of Governors

Mr. Maroni,2/ Senior Economist, Division of

International Finance, Board of Governors

Mrs. Farar, Economist, Open Market Secretariat,

Board of Governors

Mrs. Ferrell, Open Market Secretariat

Assistant, Board of Governors

Messrs. Rankin and Leonard, First Vice Presidents,

Federal Reserve Banks of Richmond and

St. Louis, respectively

Messrs. Eisenmenger,

and Sims, Senior

Reserve Banks of

Kansas City, and

Parthemos, Jordan, Doll,

Vice Presidents, Federal

Boston, Richmond, St. Louis,

San Francisco, respectively

Messrs. Hoskins and Hocter, Vice Presidents,

Federal Reserve Banks of Philadelphia and

Cleveland, respectively

Messrs. Sandberg, Thunberg, and Cox, Assistant

Vice Presidents, Federal Reserve Banks of

New York, New York, and Atlanta, respectively

1/

2/

Left meeting before any actions were taken.

Participated in meeting at point indicated.

8/19/75

By unanimous vote, Paul A. Volcker was elected Vice

Chairman of the Federal Open Market Committee, effective imme

diately, to serve until the election of his successor at the

first meeting of the Committee after February 29, 1976, with

the understanding that in the event of the discontinuance of

his official connection with the Federal Reserve Bank of New

York he would cease to have any official connection with the

Federal Open Market Committee.

By unanimous vote, the Committee ratified the action taken

by members on August 6, 1975, increasing from $2 billion to $3

billion the dollar limit on System Account holdings of certificates

purchased directly from the Treasury, specified in paragraph 2 of

Authorization for Domestic Open Market Operations, for the period

through close of business August 19, 1975.

The report of examination of the System Open Market

Account, made by the Board's Division of Federal Reserve Bank

Operations as at the close of business April 25, 1975, was

accepted.

Mr.

McWhirter joined the meeting for the discussion of

the foregoing item.

8/19/75

By unanimous vote, the minutes of actions taken at the

meeting of the Federal Open Market Committee on July 15, 1975,

were approved.

The memorandum of discussion for the meeting of the

Federal Open Market Committee on June 16-17, 1975, was accepted.

By unanimous vote, the System open market transactions

in foreign currencies during the period July 15 through August

18, 1975, were approved, ratified, and confirmed.

By unanimous vote, the Committee authorized an increase

of $180 million, to $360 million, in the Federal Reserve swap

arrangement with the Bank of Mexico, and the conforming amendment

to paragraph 2 of the authorization for System foreign currency

operations, subject to the understanding that the action would

become effective upon approval by Chairman Burns after a final

review of technical details.

Secretary's note: Chairman Burns approved

the increase on August 29, 1975.

Mr. Maroni joined the meeting for the discussion

of the foregoing item.

By unanimous vote, the open market transactions in

Government securities, agency obligations, and bankers' accept

ances during the period July 15 through August 18, 1975, were

approved, ratified, and confirmed.

8/19/75

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 output of goods and services bottomed out in the

second quarter and is likely to increase appreciably in

the current quarter. In July retail sales expanded

further and industrial production rose moderately for

the second consecutive month, following 8 months of

decline. Conditions in labor markets improved further:

employment increased, the unemployment rate declined

from 8.6 to 8.4 per cent, and the average workweek in

manufacturing lengthened considerably. Average whole

sale prices rose sharply in July, chiefly because of

increases in prices of agricultural and energy products.

The advance in average wage rates has continued to

moderate over recent months.

In recent weeks the average exchange value of the

dollar against leading foreign currencies has risen

considerably further, reflecting additional increases

in interest rates on U.S. dollar assets relative to

rates on foreign currency assets. In June the U.S.

foreign trade surplus rose substantially, as exports

increased sharply while imports declined slightly further.

In July M 1 increased relatively little and growth

in M2 and M 3 slowed substantially, following a sharp

increase in depositors' balances in May and June in

connection with Federal income tax rebates and supple

mentary social security payments. Market interest rates

in general have risen appreciably further in recent

weeks, in association with indications of strengthening

economic activity, more rapid inflation, and large cur

rent and prospective Treasury financing requirements.

Corporate bond offerings moderated somewhat in July but

State and local government offerings continued large.

Financial markets reflected considerable uncertainty

stemming from New York City financing problems. Busi

ness demands for short-term credit remained weak,

although less so than in earlier months.

8/19/75

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 pressures and

contributing to a sustainable pattern of international

transactions.

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 held on September 16, 1975.

The meeting adjourned.

Secretary