FOMC Minutes

12/19-20/77

Meeting of Federal Open Market Committee

December 19-20, 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,

December 19-20, 1977, beginning at 4:00 p.m, on Monday.

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.

Mr.

Mr.

Mr.

Broida, Secretary

Altmann, Deputy Secretary

O'Connell, General Counsel

Axilrod, Economist

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Except as noted, the following attended the Tuesday

session only:

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

Eisenmenger, Ettin, Reynolds, Scheld

Truman, and Zeisel, Associate

Economists

Mr. Pardee, Deputy Manager for Foreign

Operations

Mr. Sternlight,1/ Deputy Manager for

Domestic Operations

Mr. Hudson, Assistant to the Chairman,

Board of Governors

Messrs. Coyne 1/ 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

Messrs. Boehne and J. Davis, Senior Vice

Presidents, Federal Reserve Banks of

Philadelphia and Cleveland, respectively

Messrs. Brandt, Broaddus, Burns, and Keran,

Vice Presidents, Federal Reserve Banks

of Atlanta, Richmond, Dallas, and

San Francisco

respectively

Mr. Duprey, Senior Economist, Federal

Reserve Bank of Minneapolis

Mr. Ozog, Manager, Securities Department,

Federal Reserve Bank of New York

Note:

All of the following actions were taken on

Tuesday, December 20, 1977.

1/

Attended Monday and Tuesday sessions.

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By unanimous vote, the minutes of actions taken at

the meeting of the Federal Open Market Committee held on

November 15, 1977, were approved.

By unanimous vote, System open market transactions

in foreign currencies during the period November 15 through

December 19, 1977, were approved, ratified, and confirmed.

Renewal for further periods of

3 months of System

drawings on the German Federal Bank maturing in the period

January 5-26, 1978, was noted without objection.

By unanimous vote, System open market transactions

in Government securities, agency obligations, and bankers'

acceptances during the period November 15 through December 19,

1977, were approved, ratified, and confirmed.

With Mr. Roos 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:

The information reviewed at this meeting

suggests that real output of goods and services

is growing in the current quarter at about the

pace in the third quarter.

The dollar value

of total retail sales, which had increased

sharply in October, rose considerably further

in November.

Industrial production continued

to expand, and employment increased substantially.

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However, the unemployment rate, at 6.9 per

cent, remained in the narrow range prevailing

The wholesale price index for all

since April.

commodities rose sharply in November for the

second successive month, reflecting another

large increase in average prices of farm

products and foods. However, the rise in

average prices of industrial commodities was

less rapid than in the preceding 2 months.

The index of average hourly earnings has

advanced at a somewhat faster pace so far this

year than it had on the average during 1976.

The dollar has been under considerable

pressure in foreign exchange markets in recent

weeks, and its trade-weighted value against

major foreign currencies has declined more than

3 per cent further since mid-November.

In

October the U. S. foreign trade deficit widened

sharply, primarily as a result of the dock strike

at many U. S. ports.

M-1--which had expanded substantially in

October--declined slightly in November, and

M-2 increased relatively little.

The total of

savings deposits and small-denomination time

deposits at commercial banks declined somewhat,

but growth in large-denomination time deposits

accelerated sharply further as credit demands

remained strong.

Inflows to nonbank thrift

institutions slowed further in November. Market

interest rates have changed relatively little

since mid-November.

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 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

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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

These ranges

consistent with these objectives.

are subject to reconsideration at any time as

conditions warrant.

At this time, the Committee seeks to main

tain about the prevailing money market condi

tions 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 December-January period at annual

rates within ranges of 2-1/2 to 8-1/2 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 opera

tional 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.

In the conduct of day-to-day operations,

account shall be taken of emerging financial

market conditions, including the unsettled

conditions in foreign exchange markets.

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.

12/19-20/77

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6

It was agreed that the next meeting of the Committee

would be held on Tuesday, January 17, 1978, beginning at

9:30 a.m.

The meeting adjourned.

Secretary