FOMC Minutes

Meeting of Federal Open Market Committee

March 15-16,

1976

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,

1976,

D. C.,

beginning at 3:00 p.m.

PRESENT:

on Monday and Tuesday, March 15-16,

on Monday.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Burns, Chairman

Volcker, Vice Chairman

Balles

Black

Coldwell

Gardner

Holland

Jackson

Kimbrel

Partee

Wallich

Mr. Winn

Messrs. Baughman, Mayo, and Morris, Alternate

Members of the Federal Open Market

Committee

Messrs. Eastburn, Guffey, and MacLaury,

Presidents of the Federal Reserve Banks

of Philadelphia, Kansas City, and

Minneapolis, respectively

Mr. Broida, Secretary

Mr. Altmann, Deputy Secretary

Mr. Bernard, Assistant Secretary

Mr. O'Connell, General Counsel

Mr. Axilrod, Economist (Domestic Finance)

Mr. Gramley,1/ Economist (Domestic Business)

Messrs. Brandt, Davis, Hocter, Keran, Kichline,1/

Parthemos, and Reynolds, Associate Economists

1/

Attended Tuesday session only.

3/15-16/76

Mr.

Mr.

Mr.

Holmes, Manager, System Open Market Account

Pardee, Deputy Manager for Foreign

Operations

Sternlight, Deputy Manager for Domestic

Operations

Mr. Coyne, Assistant to the Board of Governors

Messrs. Kalchbrenner 1/ and Keir,2/ Advisers,

Division of Research and Statistics,

Board of Governors

Mr. Gemmill,2/ Adviser, Division of Inter

national Finance, Board of Governors

Mr. Henry,1/ Associate Adviser, 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

Mr.

Leonard, First Vice President, Federal

Reserve Bank of St. Louis

Messrs. Boehne, Doll, Eisenmenger, and Scheld,

Senior Vice Presidents, Federal Reserve

Banks of Philadelphia, Kansas City, Boston,

and. Chicago, respectively

Messrs. Balbach and Burns, Vice Presidents,

Federal Reserve Banks of St. Louis and

Dallas, respectively

Mr. Duprey, Senior Economist, Federal Reserve

Bank of Minneapolis

Mr. Ozog, Manager, Acceptance and Securities

Departments, Federal Reserve Bank of New York

In

the agenda for this meeting,

it was reported that advices

of the election of the following members and alternate members of

the Federal Open Market Committee for the year commencing March 1, 1976,

1/

2/

Attended Monday session only.

Attended Tuesday session only.

3/15-16/76

had

been received by the Secretary and the named individuals

had

executed their oaths of office.

The elected members and alternate members were as follows:

Robert P. Black, President of the Federal Reserve Bank of Richmond,

with Frank E. Morris, President of the Federal Reserve Bank of

Boston, as alternate;

Paul A. Volcker, President of the Federal Reserve Bank of

New York, with Richard A. Debs, First Vice President of

the Federal Reserve Bank of New York, as alternate;

Willis J. Winn, President of the Federal Reserve Bank of

Cleveland, with Robert P. Mayo, President of the Federal

Reserve Bank of Chicago, as alternate;

Monroe Kimbrel, President of the Federal Reserve Bank of

Atlanta, with Ernest T. Baughman, President of the Federal

Reserve Bank of Dallas, as alternate;

Mr. John J. Balles, President of the Federal Reserve Bank of

San Francisco.

Secretary's note: All of the following actions

were taken on Tuesday, March 16, 1976.

By unanimous vote, the following officers of the Federal

Open Market Committee were elected to serve until the election of

their successors at the first meeting of the Committee after

February 28, 1977, with the understanding that in the event of

the discontinuance of their official connection with the Board

of Governors or with a Federal Reserve Bank, as the case might be,

they would cease to have any official connection with the Federal

Open Market Committee:

3/15-16/76

Arthur F. Burns

Paul A. Volcker

Chairman

Vice Chairman

Arthur L. Broida

Murray Altmann

Normand R. V. Bernard

Thomas J. O'Connell

Edward G. Guy

Baldwin B. Tuttle

Stephen H. Axilrod

Ralph C. Bryant 1/

Lyle E. Gramley

Secretary

Deputy Secretary

Assistant Secretary

General Counsel

Deputy General Counsel

Assistant General Counsel

Economist (Domestic Finance)

Economist (International Finance)

Economist (Domestic Business)

Harry Brandt, Richard G. Davis,

William J. Hocter, Michael Keran,

James L. Kichline, James

Parthemos, John E. Reynolds,

Associate Economists

and Joseph S. Zeisel

By unanimous vote, the Federal Reserve Bank of New York

was selected to execute transactions for the System Open Market

Account until the adjournment of the first meeting of the Federal

Open Market Committee after February 28, 1977.

By unanimous vote, Alan R. Holmes, Peter D. Sternlight, and

Scott E. Pardee were selected to serve at the pleasure of the Committee

in the capacities of Manager of the System Open Market Account, Deputy

Manager for Domestic Operations, and Deputy Manager for Foreign Opera

tions, respectively, on the understanding that their selection was

subject to their being satisfactory to the Federal Reserve Bank of

New York.

Secretary's note: Advice was subsequently received

that the selections indicated above were satisfactory

to the Federal Reserve Bank of New York.

1/ Currently on leave of absence.

3/15-16/76

By unanimous vote, the minutes of actions taken at the

meeting of the Federal Open Market Committee held on February

17-18, 1976, were approved.

By unanimous vote, the System open market transactions in

foreign currencies during the period February 18 through March

15, 1976, were approved, ratified, and confirmed.

By unanimous vote, the open market transactions in

Government securities, agency obligations, and bankers' acceptances

during the period February 18 through March 15, 1976, 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

output of goods and services has continued to expand at a

moderate rate in the current quarter. In February retail

sales rose considerably and recovery in industrial production

continued. Gains in nonfarm employment were again widespread

and the unemployment rate dropped from 7.8 to 7.6 per cent.

Wholesale prices of all commodities declined again in

February, as average prices of .farm products and foods fell

appreciably further. Average wholesale prices of industrial

commodities increased somewhat less than in January, owing

in part to a reduction in crude oil prices required by the

Energy Policy and Conservation Act. Over recent months, the

advance in the index of average wage rates has moderated

somewhat.

3/15-16/76

-6

The average value of the dollar against leading foreign

currencies has increased in recent weeks to its highest level

in 2 years. In the exchange markets, the British pound has

depreciated sharply; the lira has weakened further; and most

recently, the French franc has depreciated after abandonment

of efforts to maintain fixed margins with certain other Euro

pean currencies. In January the U.S. foreign trade balance

shifted into deficit.

M1 , which had increased only a little in January, expanded

moderately in February; M2 and M 3 rose sharply. At commercial

banks and nonbank thrift institutions, inflows of time and

savings deposits other than large-denomination CD's remained

large. Since mid-February, both short- and long-term interest

rates have changed little on balance.

In light of the foregoing developments, it is the policy

of the Federal Open Market Committee to foster financial

conditions that will encourage continued 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 financial markets and the sensitive

state of foreign exchange markets, the Committee seeks to

achieve bank reserve and money market conditions consistent

with moderate growth in monetary aggregates over the period

ahead.

By unanimous vote, the Committee removed the 1-year time

limitation it had attached on March 18, 1975, to an increase from

$1 billion to $2 billion in the dollar limit, specified in paragraph

2 of the Authorization for Domestic Open Market Operations, on

System holdings of special short-term certificates of indebtedness

purchased directly from the Treasury.

3/15-16/76

It

-7was agreed that the authorization for the lending of

Government securities from the System Open Market Account, contained

in paragraph 3 of the Authorization for Domestic Open Market Opera

tions, should be retained at this time, subject to annual review.

Consideration was then given to the continuing authorizations

of the Committee, in accordance with the customary practice of review

ing such matters at the first meeting in March of every year.

Secretary's note: On February 25, 1976, certain con

tinuing authorizations of the Committee, listed below,

had been distributed by the Secretary with the advice

that, in accordance with procedures approved by the Com

mittee, they were being called to the Committee's attention

before the March organization meeting to give members an

opportunity to raise any questions they had concerning them.

Members were asked to so indicate if they wished to have

any of the authorizations in question placed on the agenda

for consideration at this meeting, and no such requests

were received.

The authorizations in question were as follows:

1.

2.

3.

4.

5.

6.

7.

8.

Procedures for allocation of securities in the System

Open Market Account.

List of Treasury Department officials to whom weekly

reports on open market operations may be sent.

Authority for the Chairman to appoint a Federal Reserve

Bank as agent to operate the System Account in case the

New York Bank is unable to function.

Resolutions providing for continued operation of the

Committee and for certain actions by the Reserve Banks

during an emergency.

Resolution relating to examinations of the System

Open Market Account.

Guidelines for the conduct of System operations in

Federal agency is'sues.

Regulation relating to Open Market Operations of Federal

Reserve Banks.

Rules of Organization, Rules Regarding Availability of

Information, and Rules of Procedure.

3/15-16/76

By unanimous vote, the Authorization for Domestic Open

Market Operations shown below was reaffirmed:

AUTHORIZATION FOR DOMESTIC OPEN MARKET OPERATIONS

1.

The Federal Open Market Committee authorizes and directs the

Federal Reserve Bank of New York, to the extent necessary to

carry out the most recent domestic policy directive adopted at

a meeting of the Committee:

(a) To buy or sell U.S. Government securities, including

securities of the Federal Financing Bank, and securities that

are direct obligations of, or fully guaranteed as to principal

and interest by, any agency of the United States in the open

market, from or to securities dealers and foreign and inter

national accounts maintained at the Federal Reserve Bank of

New York, on a cash, regular, or deferred delivery basis, for

the System Open Market Account at market prices and, for such

Account, to exchange maturing U.S. Government and Federal agency

securities with the Treasury or the individual agencies or to

allow them to mature without replacement; provided that the

.aggregate amount of U.S. Government and Federal agency securities

held in such Account (including forward commitments) at the close

of business on the day of a meeting of the Committee at which

action is taken with respect to a domestic policy directive shall

not be increased or decreased by more than $3.0 billion during the

period commencing with the opening of business on the day follow

ing such meeting and ending with the close of business on the day

of the next such meeting;

(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 maturi

ties 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 with

in 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 underlying goods; pro

vided that the aggregate amount of bankers' acceptances held

at any one time shall not exceed $1 billion;

3/15-16/76

(c) To buy U.S. Government securities, obligations that,

are direct obligations of, or fully guaranteed as to principal

and interest by, any agency of the United States, and prime

bankers' acceptances of the types authorized for purchase under

1(b) above, from dealers for the account of the Federal Reserve

Bank of New York under agreements for repurchase of such securi

ties, obligations, or acceptances in 15 calendar days or less,

at rates that, unless otherwise expressly authorized by the

Committee, shall be determined by competitive bidding, after

applying reasonable limitations on the volume of agreements

with individual dealers; provided that in the event Government

securities or agency issues covered by any such agreement are

not repurchased by the dealer pursuant to the agreement or a

renewal thereof, they shall be sold in the market or transferred

to the System Open Market Account; and provided further that in

the event bankers' acceptances covered by any such agreement

are not repurchased by the seller, they shall continue to be held

by the Federal Reserve Bank or shall be sold in the open market.

2.

The Federal Open Market Committee authorizes and directs the

Federal Reserve Bank of New York, or under special.circumstances,

such as when the New York Reserve Bank is closed, any other

Federal Reserve Bank, to purchase directly from the Treasury for

its own account (with discretion, in cases where it seems desi

rable, to issue participations to one or more Federal Reserve

Banks) such amounts of special short-term certificates of

indebtedness as may be necessary from time to time for the

temporary accommodation of the Treasury; provided that the

rate charged on such certificates shall be a rate 1/4 of 1

per cent below the discount rate of the Federal Reserve Bank

of New York at the time of such purchases, and provided further

that the total amount of such certificates held at any one time

by the Federal Reserve Banks shall not exceed $2 billion.

3.

In order to insure the effective conduct of open market opera

tions, the Federal Open Market Committee authorizes and directs

the Federal Reserve Banks to lend U.S. Government securities

held in the System Open Market Account to Government securities

dealers and to banks participating in Government securities

clearing arrangements conducted through a Federal Reserve Bank,

under such instructions as the Committee may specify from time

to time.

3/15-16/76

-10-

By unanimous vote, the Authorization for Foreign Currency

Operations shown below was reaffirmed:

AUTHORIZATION FOR FOREIGN CURRENCY OPERATIONS

1. The Federal Open Market Committee authorizes and directs

the Federal Reserve Bank of New York, for System Open Market

Account, to the extent necessary to carry out the Committee's

foreign currency directive and express authorizations by the

Committee pursuant thereto:

A. To purchase and sell the following foreign

currencies in the form of cable transfers through spot or

forward transactions on the open market at home and abroad,

including transactions with the U.S. Stabilization Fund

established by Section 10 of the Gold Reserve Act of 1934,

with foreign monetary authorities, and with the Bank for

International Settlements:

Austrian schillings

Belgian francs

Canadian dollars

Danish kroner

Pounds sterling

French francs

German marks

Italian lire

Japanese yen

Mexican pesos

Netherlands guilders

Norwegian kroner

Swedish kronor

Swiss francs

B. To hold foreign currencies listed in paragraph A

above, up to the following limits:

(1) Currencies purchased spot, including curren

cies purchased from the Stabilization Fund, and sold forward

to the Stabilization Fund, up to $1 billion equivalent;

(2) Currencies purchased spot or forward, up to the

amounts necessary to fulfill other forward commitments;

3/15-16/76

-11-

(3) Additional currencies purchased spot or forward,

up to the amount necessary for System operations to exert a

market influence but not exceeding $250 million equivalent; and

(4) Sterling purchased on a covered or guaranteed

basis in terms of the dollar, under agreement with the Bank of

England, up to $200 million equivalent.

C. To have outstanding forward commitments undertaken

under paragraph A above to deliver foreign currencies, up to the

following limits:

(1) Commitments to deliver foreign currencies to

the Stabilization Fund, up to the limit specified in paragraph

1B(1) above; and

(2) Other forward commitments to deliver foreign

currencies, up to $550 million equivalent.

D. To draw foreign currencies and to permit foreign

banks to draw dollars under the reciprocal currency arrange

ments listed in paragraph 2 below, provided that drawings by

either party to any such arrangement shall be fully liquidated

within 12 months after any amount outstanding at that time was

first drawn, unless the Committee, because of exceptional

circumstances, specifically authorizes a delay.

2. The Federal Open Market Committee directs the Federal

Reserve Bank of New York to maintain reciprocal currency

arrangements ("swap" arrangements) for System Open Market

Account for periods up to a maximum of 12 months with the

following foreign banks, which are among those designated

by the Board of Governors of the Federal Reserve System under

Section 214.5 of Regulation N, Relations with Foreign Banks

and Bankers, and with the approval of the Committee to renew

such arrangements on maturity:

Foreign bank

Austrian National Bank

National Bank of Belgium

Bank of Canada

Amount of

arrangement

(millions of..

dollars equivalent)

250

1,000

2,000

3/15-16/76

-12Amount of

Foreign bank

arrangement

(millions of

dollars equivalent)

National Bank of Denmark

Bank of England

Bank of France

German Federal Bank

Bank of Italy

Bank of Japan

Bank of Mexico

Netherlands Bank

Bank of Norway

Bank of Sweden

Swiss National Bank

Bank for International Settlements:

Dollars against Swiss francs

Dollars against authorized

European currencies other

than Swiss francs

250

3,000

2,000

2,000

3,000

2,000

360

500

250

300

1,400

600

1,250

3. Currencies to be used for liquidation of System swap com

mitments may be purchased from the foreign central bank drawn

on, at the same exchange rate as that employed in the drawing

to be liquidated. Apart from any such purchases at the rate

of the drawing, all transactions in foreign currencies under

taken under paragraph 1(A) above shall, unless otherwise

expressly authorized by the Committee, be at prevailing

market rates and no attempt shall be made to establish rates

that appear to be out of line with underlying market forces.

4. It shall be the practice to arrange with foreign central

banks for the coordination of foreign currency transactions.

In making operating arrangements with foreign central banks

on System holdings of foreign currencies, the Federal Reserve

Bank of New York shall not commit itself to maintain any specific

balance, unless authorized by the Federal Open Market Committee.

Any agreements or understandings concerning the administration

of the accounts maintained by the Federal Reserve Bank of New

York with the foreign banks designated by the Board of Governors

under Section 214.5 of Regulation N shall be referred for

review and approval to the Committee.

3/15-16/76

-13-

5. Foreign currency holdings shall be invested insofar as practi

cable, considering needs for minimum working balances. Such invest

ments shall be in accordance with Section 14(e) of the Federal

Reserve Act.

6. The Foreign Currency Subcommittee is authorized to act on

behalf of the Committee when it is necessary to enable the Federal

Reserve Bank of New York to engage in foreign currency operations

before the Committee can be consulted. The Foreign Currency Sub

committee consists of the Chairman and Vice Chairman of the Committee,

the Vice Chairman of the Board of Governors, and such other member of

the Board as the Chairman may designate (or in the absence of members

of the Board serving on the Subcommittee, other Board Members desig

nated by the Chairman as alternates, and in the absence of the Vice

Chairman of the Committee, his alternate). All actions taken by the

Foreign Currency Subcommittee under this paragraph shall be reported

promptly to the Committee.

7. The Chairman (and in his absence the Vice Chairman of

the Committee, and in the absence of both, the Vice Chairman

of the Board of Governors) is authorized:

A. With the approval of the Committee, to enter into

any needed agreement or understanding with the Secretary of

the Treasury about the division of responsibility for

foreign currency operations between the System and the

Secretary;

B. To keep the Secretary of the Treasury fully

advised concerning System foreign currency operations, and

to consult with the Secretary on such policy matters as may

relate to the Secretary's responsibilities; and

C. From time to time, to transmit appropriate reports

and information to the National Advisory Council on Inter

national Monetary and Financial Policies.

8. Staff officers of the Committee are authorized to

transmit pertinent information on System foreign currency

operations to appropriate officials of the Treasury Department.

9. All Federal Reserve Banks shall participate in the foreign

currency operations for System Account in accordance with

paragraph 3G(1) of the Board of Governors' Statement of

Procedure with Respect to Foreign Relationships of Federal

Reserve Banks dated January 1, 1944.

3/15-16/76

-14-

By unanimous vote, the Foreign Currency Directive shown

below was reaffirmed:

FOREIGN CURRENCY DIRECTIVE

1. The basic purposes of System operations in foreign

currencies are:

A. To help safeguard the value of the dollar in inter

national exchange markets;

B. To aid in making the system of international payments

more efficient;

C. To further monetary cooperation with central banks

of other countries having convertible currencies, with the

International Monetary Fund, and with other international

payments institutions;

D. To help insure that market movements in exchange

rates, within the limits stated in the International Monetary

Fund Agreement or established by central bank practices, re

flect the interaction of underlying economic forces and thus

serve as efficient guides to current financial decisions,

private and public; and

E. To facilitate growth in international liquidity in

accordance with the needs of an expanding world economy.

2. Unless otherwise expressly authorized by the Federal Open

Market Committee, System operations in foreign currencies shall

be undertaken only when necessary:

A. To cushion or moderate fluctuations in the flows of

international payments, if such fluctuations (1) are deemed

to reflect transitional market unsettlement or other tempo

rary forces and therefore are expected to be reversed in the

foreseeable future; and (2) are deemed to be disequilibrating

or otherwise to have potentially destabilizing effects on

U.S. or foreign official reserves or on exchange markets, for

example, by occasioning market anxieties, undesirable specu

lative activity, or excessive leads and lags in international

payments;

3/15-16/76

-15-

B. To temper and smooth out abrupt changes in spot

exchange rates, and to moderate forward premiums and discounts

judged to be disequilibrating. Whenever supply or demand

persists in influencing exchange rates in one direction,

System transactions should be modified or curtailed unless

upon review and reassessment of the situation the Committee

directs otherwise;

C. To aid in avoiding disorderly conditions in exchange

markets. Special factors that might make for exchange mar

ket instabilities include (1) responses to short-run increases

in international political tension, (2) differences in phasing

of international economic activity that give rise to unusually

large interest rate differentials between major markets, and

(3) market rumors of a character likely to stimulate specula

tive transactions. Whenever exchange market instability

threatens to produce diorderly conditions, System transactions

may be undertaken if the Manager reaches a judgment that they

may help to reestablish supply and demand balance at a level

more consistent with the prevailing flow of underlying pay

ments. In such cases, the Manager shall consult as soon as

practicable with the Committee or, in an emergency, with the

members of the Subcommittee designated for that purpose in

paragraph 6 of the Authorization for Foreign Currency Operations;

and

D. To adjust System balances within the limits established

in the Authorization for Foreign Currency Operations in light

of probable future needs for currencies.

3. System drawings under the swap arrangements are appropriate

when necessary to obtain foreign currencies for the purposes

stated in paragraph 2 above.

4. Unless otherwise expressly authorized by the Committee,

transactions in forward exchange, either outright or in con

junction with spot transactions, may be undertaken only (i)

to prevent forward premiums or discounts from giving rise to

disequilibrating movements of short-term funds; (ii) to

minimize speculative disturbances; (iii) to supplement exist

ing market supplies of forward cover, directly or indirectly

as a means of encouraging the retention or accumulation of

dollar holdings by private foreign holders; (iv) to allow

3/15-16/76

-16

greater flexibility in covering System or Treasury

commitments, including commitments under swap arrange

ments, and to facilitate operations of the Stabilization

Fund; (v) to facilitate the use of one currency for the

settlement of System or Treasury commitments denominated

in other currencies; and (vi) to provide cover for System

holdings of foreign currencies.

It was agreed that the next meeting of the Committee would

be held on Monday, March 29, 1976, beginning at 10:00 a.m.

The meeting adjourned.

Secretary