FOMC Minutes

7/19/77

Meeting of Federal Open Market Committee

July 19, 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, July 19, 1977,

beginning at 9:00 a.m.

PRESENT:

Burns, Chairman

Volcker, Vice Chairman

Coldwell

Gardner

Guffey

Jackson

Lilly

Mayo

Morris

Partee

Roos

Mr. Wallich

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

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,

Altanta, and Minneapolis, respectively

Mr. Broida, Secretary

Mr. Altmann, Deputy Secretary

Mr. Bernard, Assistant Secretary

Mr. Tuttle, Assistant General Counsel

Mr. Axilrod, Economist

Messrs. Balbach, T. Davis, Eisenmenger,

Ettin, Kichline, Reynolds, Scheld,

Truman, and Zeisel, Associate Economists

-

7/19/77

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 and Parthemos, Senior

Vice Presidents, Federal Reserve Banks

of Cleveland and Richmond, respectively

Messrs. Brandt, Fousek, Green, and Kaminow,

Vice Presidents, Federal Reserve Banks

of Atlanta, New York, Dallas, and

Philadelphia, respectively

Mr. Bisignano, Assistant Vice President,

Federal Reserve Bank of San Francisco

Mr. Kareken, Economic Adviser, Federal

Reserve Bank of Minneapolis

Miss Lovett, Securities Trading Officer,

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 June 21,

1977, were approved.

By unanimous vote, System open market transactions

in foreign currencies during the period June 21 through July 18,

1977, were approved, ratified, and confirmed.

- 3

7/19/77

With Messrs. Coldwell, Jackson, and Roos dissenting,

the Committee adopted the following ranges for rates of growth

in monetary aggregates for the period from the second quarter

of 1977 to the second quarter of 1978:

M-2, 7 to 9-1/2 per cent;

M-1, 4 to 6-1/2 per cent;

and M-3, 8-1/2 to 11 per cent.

By unanimous vote, System open market transactions

in Government securities, agency obligations, and bankers'

acceptances during the period June 21 through July 18, 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 that real output of goods and services

grew in the second quarter at about the rapid

rate of the first quarter. In June industrial

output continued to expand at a substantial pace,

The rise in employment moderated, and the unemploy

ment rate edged up from 6.9 to 7.1 per cent.

Total retail sales remained at about the level

reached in March; for the second quarter as a

whole, however, sales were moderately above the

first-quarter level. The wholesale price index

for all commodities declined in June, owing to

sharp decreases among farm products and foods;

as in May, average prices of industrial commodities

rose appreciably less than in earlier months of

1977. The index of average hourly earnings rose

over the first half of the year at about the same

pace that it had on the average during 1976,

The average value of the dollar against

leading foreign currencies has declined more than

1 per cent over the past month; the declines were

especially marked against the Japanese, German,

and Swiss currencies. In May the U. S. foreign

7/19/77

- 4 -

trade deficit diminished somewhat from the high

rate in the first 4 months of the year.

M-1, after rising at an exceptionally rapid

rate in April, increased little in May and grew at

a moderate pace in June. Growth in M-2 and M-3 also

Inflows to banks of the time

was moderate in June.

and savings deposits included in M-2 picked up

somewhat, after having slackened for a number of

months, and inflows to nonbank thrift institutions

remained sizable. Business short-term borrowing

expanded sharply in June. Market interest rates

in general have changed little 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.

Growth in M-1, M-2, and M-3 within ranges of

4 to 6-1/2 per cent, 7 to 9-1/2 per cent, and

8-1/2 to 11 per cent, respectively, from the

second quarter of 1977 to the second 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 July

August period to be within the ranges of 3-1/2 to

7-1/2 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 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 opera

tional 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.

-

7/19/77

5 -

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, August 16, 1977, beginning at 9:30 a.m.

The meeting adjourned.

Secretary