FOMC Minutes

Meeting of Federal Open Market Committee

June 21, 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, June 21, 1977,

beginning at 9:00 a.m.

PRESENT:

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Burns, Chairman

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 and Willes, Presidents of the

Federal Reserve Banks of Richmond and

Minneapolis, respectively

Mr. Altmann, Deputy Secretary

Mr. Bernard, Assistant Secretary

Mr. O'Connell, General Counsel

Mr. Guy, Deputy General Counsel

Messrs. Balbach, R. Davis, T. Davis,

Kichline, Scheld, Truman, and

Zeisel, Associate Economists

6/21/77

- 2 Mr. Holmes, Manager System Open Market

Account

Mr. Hudson, Assistant to the Chairman,

Board of Governors

Mr. Keir, Assistant to the Board of

Governors

Mr. O'Brien, Special Assistant to the

Board of Governors

Mr. Gemmill, Associate Director, Division

of International Finance, Board of

Governors

Mrs. Farar, Economist, Open Market

Secretariat, Board of Governors

Mrs. Deck, Staff Assistant, Open Market

Secretariat, Board of Governors

Messrs. Fossum and Smoot, First Vice

Presidents, Federal Reserve Banks of

Atlanta and Philadelphia, respectively

Messrs. Boehne, J. Davis, and Eisenmenger,

Senior Vice Presidents, Federal

Reserve Banks of Philadelphia,

Cleveland, and Boston, respectively

Messrs. Brandt, Broaddus, Burns, Sims,and

Willey, Vice Presidents, Federal

Reserve Banks of Atlanta, Richmond,

Dallas, San Francisco, and New York,

respectively

Mr. Meek, Monetary Adviser, Federal Reserve

Bank of New York

Mr. Kareken, Economic Adviser, Federal

Reserve Bank of Minneapolis

Mr. Ozog, Manager, Securities Department,

Federal Reserve Bank of New York

By unanimous vote, the minutes of actions taken at

the meeting of the Federal Open Market Committee held on

May 17,

1977, were approved.

By unanimous vote, System open market transactions

in Government securities, agency obligations, and bankers'

acceptances during the period May 17 through June 20, 1977,

were approved, ratified, and confirmed.

-

6/21/77

3 -

With Mr. Coldwell dissenting, the Federal Reserve

Bank of New York was authorized and directed, until other

wise 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 that real output of goods and services

has grown in the current quarter at about the

rapid rate of the first quarter. In May industrial

output and employment continued to expand at a

substantial pace, and the unemployment rate edged

down from 7.0 to 6.9 per cent.

Total retail

sales increased from the advanced March-April

level. The rise in the wholesale price index

for all commodities slowed substantially in May,

as average prices of farm products and foods

changed little after having increased sharply

for three consecutive months; average prices of

industrial commodities also rose less than in

other recent months.

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 was nearly as large in April as in

March.

M-1 increased only slightly in May, after

rising at an exceptionally rapid rate in April.

Reflecting mainly the behavior of M-1, growth in

M-2 and M-3 also slowed sharply. Inflows to

banks of time and savings deposits other than

large-denomination CD's continued to slacken,

but inflows to nonbank thrift institutions

remained sizable. Business short-term borrowing

moderated from the sharply increased pace of

April, and corporate borrowing in the capital

markets was reduced further. Short-term market

interest rates have changed little on balance

in recent weeks, while longer-term yields have

declined.

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4 -

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 and help resist inflationary pressures,

while contributing to a sustainable pattern of

international transactions.

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,

respectively, 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.

At this time, the Committee seeks to

maintain about the prevailing money market

conditions during the period immediately ahead,

provided that monetary aggregates appear to be

growing at approximately the rates currently

expected, which are believed to be on a path

consistent with the longer-run

reasonably

ranges for monetary aggregates cited in the

preceding paragraph.

Specifically, the Committee

seeks to maintain the weekly-average Federal

funds rate at about 5-3/8 per cent, so long as

M-1 and M-2 appear to be growing over the June

July period at annual rates within ranges of

2-1/2 to 6-1/2 per cent and 6 to 10 per cent,

respectively.

If, giving approximately equal

weight to M-1 and M-2, it appears that growth

rates over the 2-month period are approaching

or moving beyond the limits of the indicated

ranges, the operational objective for the weekly

average 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.

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6/21/77

5 -

Prior to the following action Chairman Burns left

the meeting and Vice Chairman Volcker assumed the chair for

the remainder of the meeting.

By unanimous vote, System open market transactions

in foreign currencies during the period May 17 through June 20,

1977, were approved, ratified, and confirmed.

It was agreed that the next meeting of the Committee

would be held on. Tuesday, July 19, 1977, beginning at 9:30 a.m.

The meeting adjourned.

Deputy Secretary