FOMC Minutes

8/16/77

Meeting of Federal Open Market Committee

August 16,

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.,

PRESENT:

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

on Tuesday, August 16,

1977,

beginning at 9:00 a.m.

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

Mr. Kimbrel, President of the Federal Reserve Bank

of Atlanta

Mr. Altmann, Deputy Secretary

Mr. Bernard, Assistant Secretary

Mr. O'Connell, General Counsel

Mr. Axilrod, Economist

Messrs. R. Davis, T. Davis, Eisenmenger, Kichline,

Reynolds, Scheld, Truman, and Zeisel, Associate

Economists

Mr.

Mr.

Pardee, Deputy Manager for Foreign Operations

Sternlight, Deputy Manager for Domestic

Operations

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

Miss Klaput, Open Market Secretariat, Board of

Governors

Mr.

Messrs. Rankin and Van Nice, First Vice Presidents,

Federal Reserve Banks of Richmond and

Minneapolis, respectively

Mr. J. Davis, Senior Vice President, Federal Reserve

Bank of Cleveland

Messrs.

Brandt, Broaddus, Burns, Hoskins, Keran,

and Karnosky, Vice Presidents, Federal Reserve

Banks of Atlanta, Richmond, Dallas, Philadelphia,

San Francisco, and St. Louis, respectively

Mr. Kareken, Economic Adviser, Federal Reserve

Bank of Minneapolis

Mr. John Hill, Senior Economist, 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 July 19,

Secretary's Note:

Messrs.

Volcker,

On August 5,

were approved.

1977, by unanimous vote (with

Balles and Timlen voting as alternates

respectively, and Messrs.

1977,

Coldwell,

for Messrs.

Gardner,

Guffey and

and Lilly absent),

the Committee modified the inter-meeting range for the Federal funds

rate specified in

the next-to-last paragraph of the domestic policy

directive issued on July 19,

5-3/4 to 6 per cent.

1977,

by increasing the upper limit from

By unanimous vote,

System open market transactions

in

foreign

currencies during the period July 19 through August 15, 1977, were

approved,

and confirmed.

ratified,

By unanimous vote,

ment securities,

System open market transactions in

agency obligations,

the period July 19 through August 15,

Govern

and banker's acceptances during

1977,

were approved,

ratified,

and confirmed.

By unanimous vote, the Federal Reserve Bank of New York was

authorized and directed,

execute transactions

in

until

otherwise directed by the Committee,

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 less

rapidly in the current quarter than in the second

quarter.

In July industrial output rose a little

less

than in June.

The rise

in payroll employment in non

According to the

farm establishments was substantial.

household survey data, total

nonagricultural employment

was unchanged and the unemployment rate edged down to

The dollar value of

6.9 per cent, the same as in May.

total retail sales rose somewhat, after 2 months of

commodities

decline.

The wholesale price index for all

was about unchanged in July; average prices of farm

products and foods declined sharply further, and average

prices of industrial commodities continued to rise

at a

more moderate pace than in the early months of 1977.

The index of average hourly earnings has continued to

advance at about the same pace that it had on the average

during 1976.

The weighted average exchange rate for the dollar

against leading foreign currencies has recovered more

than 1 per cent from the low point reached in late

July.

In June the U.S. foreign trade deficit

rose sharply, and

the deficit

was larger for the second quarter as a whole

than for the first.

to

The increase in M-1 was exceptionally large in July.

Inflows to banks of the time and savings deposits

included in the broader monetary aggregates strengthened,

and growth in M-2 and M-3 also accelerated sharply. Busi

ness short-term borrowing moderated from the rapid pace

in June. Interest rates on short- and intermediate-term

market instruments have risen appreciably in recent weeks,

while yields on longer-term bonds have changed little.

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 sustain

able pattern of international transactions.

At its meeting on July 19, 1977, the Committee

agreed that growth of 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 rea

sonably consistent with the longer-run ranges for monetary

aggregates cited in the preceding paragraph. Specifically,

at present, it expects the annual growth rates .over the

August-September period to be within the ranges of 0 to

5 per cent for M-1 and 3 to 8 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 6 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 mid

points of the indicated ranges, the operational objective

for the Federal funds rate shall be modified in an orderly

fashion within a range of 5-3/4 to 6-1/4 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.

-5

It.was agreed that the next meeting of the Committee would

be held on Tuesday,

September 20,

1977,

beginning at 9:30 a.m.

The meeting adjourned.

Deputy Secretary