FOMC Minutes

2/28/78

Meeting of Federal Open Market Committee

February 28, 1978

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, February 28,

1978, at 9:00 a.m.

PRESENT:

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Burns, Chairman

Volcker, Vice Chairman

Coldwell

Guffey

Jackson

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

Bernard, Assistant Secretary

Axilrod, Economist

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

Eisenmenger, Kichline, Scheld,

Truman, and Zeisel, Associate

Economists

- 2 -

2/28/78

Mr. Holmes, Manager, System Open Market

Account

Mr. Pardee, Deputy Manager for Foreign

Operations

Mr. Sternlight, Deputy Manager for Domestic

Operations

Messrs. Coyne and Keir, Assistants to the

Board of Governors

Mr. Wallace 1/, Staff Director for Federal

Reserve Bank Activities, Board of

Governors

Mrs. Farar, Economist, Open Market

Secretariat, Board of Governors

Mrs. Deck, Staff Assistant, Open Market

Secretariat, Board of Governors

Messrs. Boehne, J. Davis, and Parthemos,

Senior Vice Presidents, Federal

Reserve Banks of Philadelphia,

Cleveland, and Richmond, respectively

Mr. Brandt, Vice President, Federal

Reserve Bank of Atlanta

Mr. Kareken, Economic Adviser, Federal

Reserve Bank of Minneapolis

Mr. Meek, Monetary 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

January 17, 1978, were approved.

The report of examination of the System Open Market

Account, made by the Board's Office of Staff Director for

Federal Reserve Bank Activities as of the close of business

October 28, 1977, was accepted.

1/

Left the meeting at the point indicated.

- 3 -

2/28/78

Following the preceding actions, Mr. Wallace left

the meeting.

By unanimous vote, System open market transactions

in foreign currencies during the period January 17

through

February 27, 1978, were ratified.

Pursuant to paragraph 1D of the Authorization for

Foreign Currency Operations, the Committee, by unanimous vote,

expressly authorized an over-all open position in foreign

currencies of $2.0 billion, effective immediately.

Renewal for further periods of 3 months of System

drawings on the German Federal Bank maturing in the period

March 5-31, 1978, was noted without objection.

By unanimous vote, the Committee adopted the following

ranges for rates of growth in monetary aggregates for the

period from the fourth quarter of 1977 to the fourth quarter

of 1978:

M-1, 4 to 6-1/2 per cent; M-2, 6-1/2 to 9 per cent;

and M-3, 7-1/2 to 10 per cent.

By unanimous vote, System open market transactions

in Government securities, agency obligations, and bankers'

acceptances during the peroiod January 17 through February

27,

1978, were ratified.

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:

2/28/78

- 4 The information reviewed at this meeting

suggests that retail sales, industrial pro

duction, and housing starts were adversely

affected in January by unusually severe

It appears, however, that there

weather.

has been little change in the underlying

economic situation. Employment increased

further in January and the unemployment rate

edged down from 6.4 to 6.3 per cent. Both

the consumer price index and the wholesale

price index rose substantially. The index of

average hourly earnings advanced sharply, as

higher minimum wages became effective at the

beginning of the year.

After a period of calm, the dollar came

under renewed downward pressure around mid

February, and its trade-weighted value against

major foreign currencies has declined about

1-1/2 per cent. The Swiss franc and the German

mark have registered the most pronounced

appreciations against the dollar.

M-1 expanded appreciably in January but

declined somewhat in early February. Growth

in M-2 picked up in January, reflecting some

strengthening in inflows to banks of time and

savings deposits other than negotiable CD's.

Inflows to nonbank thrift institutions con

tinued to slow. Market interest rates 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 con

tinued economic expansion and help resist

inflationary pressures, while contributing to

a sustainable pattern of international trans

actions.

Growth of M-l, M-2, and M-3 within ranges

of 4 to 6-1/2 per cent, 6-1/2 to 9 per cent,

and 7-1/2 to 10 per cent, respectively, from

the fourth quarter of 1977 to the fourth quarter

of 1978 appears to be consistent with these

objectives. These ranges are subject to

reconsideration at any time as conditions warrant.

2/28/78

- 5 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 February

March period at annual rates within ranges of

1 to 6 per cent and 4-1/2 to 8-1/2 per cent,

If, giving approximately equal

respectively.

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 6-1/2 to 7

In the conduct of day-to-day opera

per cent.

tions, account shall be taken of emerging

financial market conditions, including the

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.

It was agreed that the next meeting of the Committee

would be held on Tuesday, March 21, 1978, beginning at 9:30

a.m.

The meeting adjourned.

Secretary