FOMC Minutes

5/17/77

Meeting of Federal Open Market Committee

May 17, 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, May 17, 1977,

beginning at 9:30 a.m.

PRESENT:

Mr. Burns, Chairman

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Volcker, Vice Chairman

Coldwell

Gardner

Guffey

Jackson

Lilly

Mayo

Morris

Partee

Roos

Wallich

Messrs. Balles, Baughman, Eastburn, and Winn,

Alternate Members of the Federal Open

Market Committee

Messrs. Black, Kimbrel, and Willes, Presidents

of the Federal Reserve Banks of Richmond,

Atlanta, and Minneapolis, respectively

Mr. Broida, Secretary

Mr. Altmann, Deputy Secretary

Mr. Bernard, Assistant Secretary

Mr. O'Connell, General Counsel

Mr. Axilrod, Economist

Messrs. Balbach, T. Davis, Ettin, Kichline,

Reynolds, Scheld, Truman, and Zeisel,

Associate Economists

-

5/17/77

2 -

Mr. Holmes, Manager System Open Market

Account

Mr. Pardee, Deputy Manager for Foreign

Operations

Mr. Sternlight, Deputy Manager for

Domestic Operations

Mr. Hudson, Assistant to the Chairman,

Board of Governors

Messrs. Coyne and Keir, Assistants to

the Board of Governors

Mrs. Farar, Economist, Open Market

Secretariat, Board of Governors

Mrs. Deck, Staff Assistant, Open Market

Secretariat, Board of Governors

Messrs. J. Davis, Eisenmenger, and

Parthemos, Senior Vice Presidents,

Federal Reserve Banks of Cleveland,

Boston, and Richmond, respectively

Messrs. Brandt, Burns, Fousek, Kaminow,

and Keran, Vice Presidents, Federal

Reserve Banks of Atlanta, Dallas,

New York, Philadelphia, and San

Francisco, respectively

Ms. Tschinkel, Assistant Vice President,

Federal Reserve Bank of New York

Mr. Kareken, Economic Adviser, Federal

Reserve Bank of Minneapolis

By unanimous vote, the minutes of actions taken at

the meeting of the Federal Open Market Committee held on

April 19, 1977, were approved.

By unanimous vote, System open market transactions

in foreign currencies during the period April

19 through

May 16, 1977, were approved, ratified, and confirmed.

By unanimous vote, System open market transactions

in Government securities, agency obligations, and bankers'

acceptances during the period April 19 through May 16, 1977,

were approved, ratified, and confirmed.

5/17/77

-

3 -

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 policy directive:

The information reviewed at this meeting

suggests that real output of goods and services

is growing at a rapid rate in the current quarter.

In April industrial output and employment con

tinued to expand at a substantial pace, and the

unemployment rate declined from 7.3 to 7.0 per

cent.

Total retail sales remained at the advanced

level reached in March.

The wholesale price

index for all commodities rose substantially in

April for the third consecutive month; increases

again were particularly sharp among farm products

and foods, and they remained sizable for industrial

commodities.

The average value of the dollar against

leading foreign currencies has changed little on

balance over the past month.

The U. S. foreign

trade deficit widened further in March; for the

first quarter as a whole, the deficit was twice

as large as for the preceding quarter,.

The increase in M-1, which had been moderate

in the first quarter, was exceptionally large in

April.

Inflows of the time and savings deposits

included in the broader aggregates were slower

than earlier in the year, but because of the rapid

expansion in M-1, growth in M-2 and M-3 accelerated.

Business short-term borrowing expanded sharply

while corporate financing in the capital markets

was reduced. Market interest rates have risen in

recent weeks.

In light of the foregoing developments, it is

the policy of the Federal Open Market Committee to

foster bank reserve and other financial conditions

that will encourage continued economic expansion

and help resist inflationary pressures, while

contributing to a sustainable pattern of inter

national transactions.

5/17/77

-

4

-

At its meeting on April 19, 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

9-1/2 per cent, and 8-1/2 to 11 per cent, res

pectively, from the first quarter of 1977 to the

first quarter of 1978 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

expects the annual growth rates over the May

June period to be within the ranges of 0 to 4

per cent for M-1 and 3-1/2 to 7-1/2 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 5-3/8

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 5-1/4 to 5-3/4 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.

It was agreed that the next meeting of the Committee

would be held on Tuesday, June 21,

1977, beginning at 9:30 a.m.

The meeting adjourned.

Secretary