FOMC Minutes

11/15/77

Meeting of Federal Open Market Committee

November 15, 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, November 15,

1977, at 9:30 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, 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, Eisenmenger,

Kichline, Reynolds, Scheld, Truman,

and Zeisel, Associate Economists

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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, Burns, Fousek, and Kaminow,

Vice Presidents, Federal Reserve

Banks of Atlanta; Dallas, New York,

and Philadelphia, respectively

Mr. Kareken, Economic Adviser, Federal

Reserve Bank of Minneapolis

Mrs. Tschinkel, Adviser, 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

October 17-18, 1977, were approved.

By unanimous vote, System open market transactions

in foreign currencies during the period October 18 through

November 14, 1977, were approved, ratified, and confirmed.

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11/15/77

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By unanimous vote, the Committee approved the renewal

for further periods of up to one year of the following swap

arrangements, having the indicated amounts and maturity dates:

Foreign bank

Austrian National Bank

Bank of England

Bank of Japan

Bank of Mexico

Bank of Norway

Bank of Sweden

Swiss National Bank

Bank for International

SettlementsSwiss francs

Other authorized

European currencies

National Bank of Belgium

National Bank of Denmark

German Federal Bank

Bank of France

Netherlands Bank

Bank of Canada

Bank of Italy

Amount of

arrangement

(millions of

dollars

equivalent)

Term

(months)

$

12 months

250.0

3,000.0

2,000.0

360.0

250.0

300.0

1,400.0

"

"

"

"

"

600.0

1,250.0

1,000.0

250.0

2,000.0

2,000.0

500.0

2,000.0

3,000.0

Maturity

date

12/2/78

12/2/78

12/2/78

12/2/78

12/2/78

12/2/78

12/2/78

12/2/78

12/2/78

12/20/78

12/29/78

12/29/78

12/29/78

12/29/78

12/29/78

12/30/78

By unanimous vote, System open market transactions

in Government securities, agency obligations, and bankers'

acceptances during the period October 18 through November 14,

1977, were approved, ratified, and confirmed.

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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 growth in real output of goods

and services is picking up in the current

quarter from the reduced pace in the third

quarter.

The dollar value of total retail

sales, which had been unchanged in September,

rose substantially in October.

Industrial pro

duction and employment increased somewhat.

The unemployment rate, at 7.0 per cent, remained

The

in the narrow range prevailing since April.

wholesale price index for all commodities rose

sharply in October, as average prices of farm

products and foods increased after having

declined appreciably over the preceding 4 months.

Prices of industrial commodities rose at about

the average rate of the preceding 12 months.

The index of average hourly earnings increased

sharply in September and has advanced at a some

what faster pace so far this year than it had

on the average during 1976.

The trade-weighted value of the dollar

against major foreign currencies has declined

further since mid-October.

In September the

U. S. foreign trade deficit was reduced some

what, in part as a result of temporary factors.

M-1 and M-2 increased substantially in

October, but growth slowed sharply in early

November.

In October inflows to banks of the

total of savings deposits and small-denomina

tion time deposits fell off, but banks expanded

the outstanding volume of large-denomination

CD's substantially as credit demands strengthened.

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Inflows to nonbank thrift institutions slowed

somewhat in October from the strong pace of

the preceding 2 months.

Following a sub

stantial rise in member bank borrowings,

Federal Reserve discount rates were increased

from 5-3/4 to 6 per cent in late October.

Market interest rates have fluctuated moderately

since mid-October and most recently have tended

to decline.

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 con

tinued economic expansion and help resist

inflationary pressures, while contributing to

a sustainable pattern of international trans

actions.

At its meeting on October 18, 1977, the

Committee agreed that 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 con

sistent with these objectives.

These ranges are

subject to reconsideration at any time as

conditions warrant.

At this time, the Committee seeks to main

tain 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 the current level, so long as

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

November-December period at annual rates within

ranges of 1 to 7 per cent and 5 to 9 per cent,

respectively.

If, giving approximately equal

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

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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, December 20, 1977, beginning at

9:30 a.m.

The meeting adjourned.

Secretary