FOMC Minutes

2/15/77

Meeting of Federal Open Market Committee

February 15, 1977

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, February 15,

1977, at 9:00 a.m.

PRESENT:

Burns, Chairman

Volcker, Vice Chairman

Balles

Black

Coldwell

Gardner

Jackson

Kimbrel

Lilly

Partee

Mr. Wallich

Mr. Winn

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Messrs. Baughman, Guffey, Mayo, and Morris,

Alternate Members of the Federal Open

Market Committee

Messrs. Eastburn and Roos, Presidents of the

Federal Reserve Banks of Philadelphia and

St. Louis, respectively

Mr. Broida, Secretary

Mr. Altmann,1/ Deputy Secretary

Mr. Bernard,1/ Assistant Secretary

Mr. O'Connell, General Counsel

Mr. Axilrod, Economist (Domestic Finance)

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

Kichline,1, Parthemos,1/ Reynolds,1/

and Zeisel,1/ Associate Economists

1/

Attended part of Tuesday session only.

2/15/77

- 2 Mr. Holmes, Manager System Open Market

Account

Mr. Pardee,1/ Deputy Manager for Foreign

Operations

Mr. Sternlight,1/ Deputy Manager for

Domestic Operations

Messrs. Coyne and Keir,1/ Assistants to

the Board of Governors

Mr. Ettin,1/ Associate Director, Division

of Research and Statistics, Board of

Governors

Mr. Truman,1/ Associate Director, Division

of International Finance, Board of

Governors

Mrs. Farar,1/ Economist, Open Market

Secretariat, Board of Governors

Mrs. Deck,1/ Staff Assistant, Open Market

Secretariat, Board of Governors

Mr. Van Nice, First Vice President, Federal

Reserve Bank of Minneapolis

Messrs. Balbach,1/ Boehne,1/ Davis,1/ and

Scheld,1/ Senior Vice Presidents,

Federal Reserve Banks of St. Louis,

Philadelphia, Cleveland,and Chicago,

respectively

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

Federal Reserve Banks of Kansas City

and Dallas, respectively

Mr. McNees,1/ Assistant Vice President,

Federal Reserve Bank of Boston

Mr. Kareken,1/ Economic Adviser, Federal

Reserve Bank of Minneapolis

Mr. Hill,1/ Senior Economist, Federal Reserve

Bank of New York

By unanimous vote, the Committee approved the

statement of policy regarding the Government

Act:

1/

Attended part of Tuesday session only.

following

in the Sunshine

2/15/77

-

3 -

Policy Regarding the

Government in the Sunshine Act

On September 13, 1976, there was enacted into

law the Government in the Sunshine Act, Pub. L. No.94

409, 90 Stat. 1241 ("Sunshine Act"), established

for the purpose of providing the public with the

"fullest practicable information regarding the

decisionmaking processes of the Federal Government...

while protecting the rights of individuals and the

ability of the Government to carry out its responsi

bilities."1/ The Sunshine Act applies only to those

Federal agencies that are defined in Section 552(e)

of Title 5 of the United States Code and "headed by

a collegial body composed of two or more individual

members, a majority of whom are appointed to such

position by the President with the advice and con

sent of the Senate, and any subdivision thereof

authorized to act on behalf of the agency. "2/

The Federal Open Market Committee ("FOMC") is

a separate and independent statutory body within

the Federal Reserve System. In no respect is it an

agent or 'subdivision' of the Board. It was originally

established by the Banking Act of 1933 and restructured

in its present form by the Banking Act of 1935 and

subsequent legislation in 1942 (generally see 12 U.S.C.

§263(a)). The FOMC's membership is composed of the seven

members of the Board of Governors of the Federal Reserve

System ("Board of Governors") and five representatives of

1/

2/

Government in the Sunshine Act, Pub. L. No. 94

409, §2, 90 Stat. 1241 (1976).

Government in the Sunshine Act, Pub. L. No. 94

409, §3(a), 90 Stat. 1241 (1976).

2/15/77

- 4 -

the Federal Reserve Banks who are selected annually

in accordance with the procedures set forth in

Section 12A of the Federal Reserve Act, 12 U.S.C.

§263(a).

Members of the Board of Governors serve

in an ex officio capacity on the FOMC by reason of

their appointment as Members of the Board of

Governors, not as a result of an appointment "to

such position" (the FOMC) by the President.

Representatives of the Reserve Banks serve on the

FOMC not as a result of an appointment "to such

position" by the President, but rather by virtue

of their positions with the Reserve Banks and their

selection pursuant to Section 12A of the Federal

Reserve Act.

It is clear therefore that the FOMC

does not fall within the scope of an 'agency' or

'subdivision' as defined in the Sunshine Act and

consequently is not subject to the provisions of

that Act.

As explained below, the Act would not require

the FOMC to hold its meetings in open session even

if the FOMC were covered by the Act.

However,

despite the conclusion reached that the Sunshine

Act does not apply to the FOMC, the FOMC has

determined that its procedures and timing of public

disclosure already are conducted in accordance with

the spirit of the Sunshine Act, as that Act would

apply to deliberations of the nature engaged in by

the FOMC.

In the foregoing regard, the FOMC has noted

that while the Act calls generally for open meetings

of multi-member Federal agencies, 10 specific

exemptions from the open meeting requirement are

provided to assure the ability of the Government to

carry out its responsibilities.

Among the exemp

tions provided is that which authorizes any agency

operating under the Act to conduct closed meetings

where the subject of a meeting involves information

"the premature disclosure of which would--in the

case of an agency which regulates currencies,

securities, commodities, or financial institutions,

2/15/77

-

5 -

be likely to lead to significant financial specula

tion in currencies, securities, or commodities."3/

As to meetings closed under such exemption, the

Act requires the maintenance of either a transcript,

electronic recording or minutes and sets forth

specified, detailed requirements as to the contents

and timing of disclosure of certain portions or all

of such minutes. The Act permits the withholding

from the public of the minutes where disclosure

would be likely to produce adverse consequences of

the nature described in the relevant exemptions.

The FOMC has reviewed the agenda of its monthly

meetings for the past three years and has determined

that all such meetings could have been closed pur

suant to the exemption dealing with financial

speculation or other exemptions set forth in the

Sunshine Act. The FOMC has further determined that

virtually all of its substantive deliberations could

have been preserved pursuant to the Act's minutes

requirements and that such minutes could similarly

have been protected against premature disclosure

under the provisions of the Act.

The FOMC's deliberations are currently reported

by means of a document entitled "Record of Policy

Actions" which is released to the public approxi

mately one month after the meeting to which it

relates. The Record of Policy Actions complies with

the Act's minutes requirements in that it contains

a full and accurate report of all matters of policy

discussed and views presented, clearly sets forth

all policy actions taken by the FOMC and the reasons

therefor, and includes the votes by individual

members on each policy action. The timing of

release of the Record of Policy Actions is fully

consistent with the Act's provisions assuring

against premature release of any item of discussion

in an agency's minutes that contains information

of a sensitive financial nature.

In fact, by

3/

Government in the Sunshine Act, Pub. L. No. 94

409, §3(a), 90 Stat. 1242 (1976).

- 6 -

2/15/77

releasing the comprehensive Record of Policy Actions

to the public approximately a month after each

meeting, the FOMC exceeds the publication require

ments that would be mandated by the letter of the

Sunshine Act.

Recognizing the Congressional purpose under

lying enactment of the Sunshine Act, the FOMC has

determined to continue its current practice and

timing of public disclosures in the conviction

that its operations thus conducted are consistent

with the intent and spirit of the Sunshine Act.

By unanimous vote, the minutes of actions taken at

the meeting of the Federal Open Market Committee held on

January 17-18, 1977, were approved.

By unanimous vote, the Committee amended Section

271.6(a) of its Rules Regarding Availability of Information to

read as follows, effective March 12,

1977:

271.6 Information not Disclosed

Except as may be authorized by the Committee,

information of the Committee that is not available

to the public through other sources will not be

published or made available for inspection, examina

tion, or copying by any person if such information

(a)

is specifically exempted from dis

closure by statute (other than

section 552b of Title 5 United

States Code), provided that such

statute (A) requires that the

matters be withheld from the public

in such a manner as to leave no dis

cretion on the issue, or (B) estab

lishes particular criteria for with

holding or refers to particular

-

2/15/77

7 -

types of matters to be withheld; or

is specifically authorized under

criteria established by an executive

order to be kept secret in the

interest of national defense or

foreign policy and is in fact

properly classified pursuant to

such executive order.

*

*

*

*

*

By unanimous vote, System open market transactions

in foreign currencies during the period January 18,

1977,

through February 14, 1977, were approved, ratified, and

confirmed.

By unanimous vote, System open market transactions

in Government securities, agency obligations, and bankers'

acceptances during the period January 18, 1977, through

February 14, 1977, 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 in the System Account

in accordance with the following domestic policy directive:

The information reviewed at this meeting

suggests underlying strength in economic activity,

although industrial production and retail sales

were held down in January by the effects of

unusually severe weather. Housing starts rose

sharply in December, and labor market surveys

completed by mid-January indicated a further rise

in employment and a decline in the unemployment

rate from 7.8 to 7.3 per cent. The wholesale

price index for all commodities continued to

2/15/77

-

8 -

rise, reflecting increases in the average both for

farm products and foods and for industrial

commodities.

The index of average wage rates

rose sharply in January as a result of marked

increases in the volatile construction and service

sectors.

The average value of the dollar against

leading foreign currencies has risen somewhat over

the past month.

In December the U. S. foreign

trade deficit increased further; in the fourth

quarter as a whole the deficit was a little larger

than in the third quarter.

M-1, which had expanded appreciably in

December, grew at a moderate pace in January.

Growth in M-2 and M-3 also moderated.

At banks

and thrift institutions, inflows of time and

savings deposits other than large-denomination CD's

slowed somewhat.

Interest rates have changed

relatively little on balance since mid-January.

In light of the foregoing developments, it

is the policy of the Federal Open Market Committee

to foster bank reserve and other financial con

ditions that will encourage continued economic

expansion, while resisting inflationary pressures

and contributing to a sustainable pattern of

international transactions.

At its meeting on January 18, 1977, the

Committee agreed that growth of M-1, M-2, and

M-3 within ranges of 4-1/2 to 6-1/2 per cent, 7

to 10 per cent, and 8-1/2 to 11-1/2 per cent,

respectively, from the fourth quarter of 1976 to

the fourth quarter of 1977 appears to be consistent

with these objectives. These ranges are subject

to reconsideration at any time as conditions

warrant.

The Committee seeks to encourage near-term

rates of growth in M-1 and M-2 on a path believed

to be reasonably consistent with the longer-run

ranges for monetary aggregates cited in the pre

ceding paragraph.

Specifically, at present, it

2/15/77

- 9 -

expects the annual growth rates over the February

March period to be within the ranges of 3 to 7 per

cent for M-1 and 6-1/2 to 10-1/2 per cent for M-2.

In the judgment of the Committee such growth rates

are likely to be associated with a weekly average

Federal funds rate of about 4-5/8 to 4-3/4 per

cent.

If, giving approximately equal weight to

M-1 and M-2, it appears that growth rates over the

2-month period will deviate significantly from the

midpoints of the indicated ranges, the operational

objective for the Federal funds rate shall be modified

in an orderly fashion within a range of 4-1/4 to 5

per cent.

If it appears during the period before the next

meeting that the operating constraints specified

above are proving to be significantly inconsistent,

the Manager is promptly to notify the Chairman who

will then decide whether the situation calls for

supplementary instructions from the Committee.

By unanimous vote,the Committee revised No. 4 of

the Guidelines for the Conduct of System Operations in Federal

Agency Issues to read as follows, effective immediately;

4.

Purchases will be limited to fully taxable

issues, not eligible for purchase by the

Federal Financing Bank, for which there is

an active secondary market. Purchases will

also be limited to issues outstanding in

amounts of $300 million or over in cases

where the obligations have a maturity of five

years or less at the time of issuance, and

to issues outstanding in amounts of $200

million or over in cases where the securities

have a maturity of more than five years at

the time of issuance.

It was agreed that the next meeting of the Committee

would be held on March 15, 1977, at 9:30 a.m.

The meeting adjourned.

Secretary