FOMC Minutes

10/17-18/77

Meeting of Federal Open Market Committee

October 17-18, 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 Monday and Tuesday,

October 17-18, 1977, beginning at 3:00 p.m. on Monday.

PRESENT:

Burns, Chairman

Volcker, Vice Chairman

Coldwell

Gardner 1/

Guffey

Jackson

Lilly

Mayo

Morris

Partee

Roos

Mr. Wallich

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Messrs. Balles, Baughman, 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, R. Davis, T. Davis, Ettin,

Kichline, Reynolds, Scheld, Truman,

and Zeisel, Associate Economists

1/

Attended Tuesday session only.

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10/17-18/77

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

Mr. Kalchbrenner 2/, Associate Director,

Division of Research and Statistics,

Board of Governors

Mrs. Farar, Economist, Open Market Secretariat,

Board of Governors

Mrs. Deck, Staff Assistant, Open Market

Secretariat, Board of Governors

Messrs. McIntosh, Moriarty, and Smoot,

First Vice Presidents, Federal Reserve

Banks of Boston, St. Louis, and

Philadelphia, respectively

Mr. J. Davis 1/, Senior Vice President

Federal Reserve Bank of Cleveland

Messrs. Broaddus, Burns, Cox, Kaminow, and

Keran, Vice Presidents, Federal Reserve

Banks of Richmond, Dallas, Atlanta,

Philadelphia, and San Francisco,

respectively

Mr. Sandberg, 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

September 20, 1977, were approved.

Note:

The following actions were taken on Tuesday,

October 18, 1977.

1/

Attended Tuesday session only.

2/

Attended part of Tuesday session only.

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10/17-18/77

3

By unanimous vote, System open market transactions

in foreign currencies during the period September 20 through

October 17, 1977, were approved, ratified, and confirmed.

By unanimous vote, System open market transactions

in Government securities, agency obligations, and bankers'

acceptances during the period September 20 through October 17,

1977, were approved, ratified, and confirmed.

By unanimous vote, the Committee amended paragraph

2 of the Authorization for Domestic Open Market Operations to

lower the dollar limit on Federal Reserve Bank holdings of

special short-term certificates of indebtedness purchased

directly from the Treasury from $3

billion to $2 billion,

effective immediately.

With Mr. Wallich dissenting, the Committee adopted

the following ranges for rates of

growth in monetary aggregates

for the period from the third quarter of 1977 to the third

quarter of 1978:

per cent;

M-1,

and M-3, 8 to

4 to 6-1/2 per cent;

M-2, 6-1/2 to 9

10-1/2 per cent.

With Mr. Morris dissenting, 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:

10/17-18/77

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The information reviewed at this meeting suggests

that growth in real output of goods and services slowed

in the third quarter, mainly because of a reduction in

In September

the rate of inventory accumulation.

industrial production expanded, returning to about

the level reached in July, and employment increased

The unemployment rate edged down to

substantially.

6.9 per cent, but remained near the level prevailing

since April.

The dollar value of total retail sales

declined after having risen appreciably in July and

August.

The wholesale price index for all commodities,

which had declined on balance since May, advanced in

September; average prices of farm products and foods

changed little following 3 months of sharp decreases,

and average prices of industrial commodities rose

So far

more than in the immediately preceding months.

this year the index of average hourly earnings has

advanced at about the same pace as it had on the

average during 1976.

Pressure on the dollar in foreign exchange markets

emerged at the end of September, and the dollar has

declined against most major foreign currencies and

particularly against the Japanese yen.

In August the

U.S. foreign trade deficit widened; the July-August

average was somewhat above the second-quarter rate.

M-1 and M-2 expanded somewhat more in September

than in August, and increased substantially further

in early October.

Inflows to banks of time and savings

deposits increased little in September from the reduced

rate in August, while inflows to nonbank thrift insti

tutions remained strong.

Short-term interest rates

have risen further in recent weeks, and yields on

longer-term market securities have increased.

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 international transactions.

Growth of M-1, M-2, and M-3 within ranges of 4 to

6-1/2 per cent, 6-1/2 to 9 per cent, and 8 to 10-1/2

per cent, respectively, from the third quarter of

1977 to the third quarter of 1978 appears to be

consistent with these objectives.

These ranges are

subject to reconsideration at any time as conditions

warrant.

10/17-18/77

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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 reasonably consistent with the longer-run ranges

for monetary aggregates cited in the preceding paragraph.

Specifically, the Committee seeks to maintain the

weekly-average Federal funds rate at about 6-1/2 per

cent, so long as M-1 and M-2 appear to be growing

over the October-November period at annual rates

within ranges of 3 to 8 per cent and 5-1/2 to 9-1/2

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 6-1/4 to 6-3/4 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, November 15,

1977, beginning at

The meeting adjourned.

Secretary

9:30 a.m.