FOMC Minutes

4/18/78

Meeting of Federal Open Market Committee

April 18, 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, April 18, 1978, at 9:00 a.m.

PRESENT:

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Miller, Chairman

Volcker, Vice Chairman

Baughman

Coldwell

Eastburn

Gardner 1/

Jackson

Partee

Wallich

Willes

Winn

Messrs. Black, Kimbrel, and Mayo, Alternate Members of

the Federal Open Market Committee

Messrs. Guffey, Morris, and Roos, Presidents of the

Federal Reserve Banks of Kansas City, Boston, and

St. Louis, respectively

Broida, Secretary

Altmann, Deputy Secretary

Bernard, Assistant Secretary

O'Connell, General Counsel

Axilrod, Economist

Messrs, Burns, J. Davis, R. Davis, Ettin, Kaminow,

Keir, Kichline, Paulus, Truman, and Zeisel,

Associate Economists

1/

Entered meeting at the point indicated.

4/18/78

- 2 Mr. Pardee, Deputy Manager for Foreign Operations

Mr. Sternlight, Deputy Manager for Domestic

Operations

Mr. Coyne, Assistant to the Board of Governors

Mr. Gemmill, Associate Director, Division of Inter

national Finance, Board of Governors

Mr. Kalchbrenner, Associate Director, Division of

Research and Statistics, Board of Governors

Ms. Farar, Economist, Open Market Secretariat,

Board of Governors

Mrs. Deck, Staff Assistant, Open Market Secretariat,

Board of Governors

Mr. Williams, First Vice President, Federal Reserve

Bank of San Francisco

Messrs. Balbach, Parthemos, and Scheld, Senior Vice

Presidents, Federal Reserve Banks of St. Louis,

Richmond, and Chicago, respectively

Messrs. Brandt, T. Davis, and Keran, Vice Presidents,

Federal Reserve Banks of Atlanta, Kansas City,

and San Francisco, respectively

Mr. McNees, Assistant Vice President, Federal Reserve

Bank of Boston

Mr. Ozog, Manager, Securities Department, 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 March 21, 1978, were approved.

By unanimous vote, System open market transactions in foreign

currencies during the period March 21 through April 17, 1978, were

ratified.

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Renewal for further periods of 3 months of System drawings on

the German Federal Bank and the Swiss National Bank maturing in the

period May 2-22, 1978, was noted without objection.

Prior to the following action Mr. Gardner entered the meeting.

By unanimous vote, the Committee adopted the following ranges

for rates of growth in monetary aggregates for the period from the first

quarter of 1978 to the first quarter of 1979:

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.

The associated

range for bank credit is 7-1/2 to 10-1/2 per cent.

By unanimous vote, System open market transactions in Govern

ment securities, agency obligations, and bankers' acceptances during the

period March 21 through April 17, 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:

The information reviewed at this meeting suggests

that growth in real output of goods and services was

small in the first quarter, owing in part to the unusually

severe weather and the lengthy strike in coal mining, but

that economic activity was rebounding in the latter part

of the period. In March industrial production and non

farm payroll employment increased sharply further. The

unemployment rate edged up from 6.1 to 6.2 per cent, as

the civilian labor force expanded substantially. Retail

sales recovered much more in February than had been reported

earlier, and sales rose considerably further in March.

4/18/78

- 4 -

The pace of the rise in wholesale prices remained rapid,

reflecting further large increases in farm products and

processed foods. The index of average hourly earnings

accelerated in the first quarter, largely because of the

increase in minimum wages at the beginning of the year.

The trade-weighted value of the dollar against major

foreign currencies declined sharply after the March 31

announcement of a very large increase in the U. S. foreign

trade deficit for February. But over the past week the

dollar has recovered to about its level of 4 weeks ago.

M-1, which had declined in February, rose moderately

in March. Inflows to banks of time and savings deposits

other than negotiable CD's and inflows to nonbank thrift

Most market interest rates,

institutions remained slow.

especially longer-term rates, have increased somewhat on

balance 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

resist inflationary pressures while encouraging continued

moderate economic expansion and contributing to a sus

tainable 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 7-1/2 to 10 per

cent, respectively, from the first quarter of 1978 to the

first quarter of 1979 appears to be consistent with these

objectives. The associated range for bank credit is 7-1/2

to 10-1/2 per cent. These ranges are subject to recon

sideration 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 reasonably

consistent with the longer-run ranges for monetary aggre

gates cited in the preceding paragraph. Specifically, at

present, it expects the annual growth rates over the

April-May period to be within ranges of 4 to 8-1/2 per cent

for M-1 and 5-1/2 to 9-1/2 per cent for M-2. In the judg

ment of the Committee such growth rates are likely to be

associated with a weekly-average Federal funds rate slightly

above the current level. If, giving approximately equal

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

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4/18/78

the 2-month period will deviate significantly from the

midpoints of the indicated ranges, the operational objec

tive for the Federal funds rate shall be modified in an

orderly fashion within a range of 6-3/4 to 7-1/2 per cent.

In the conduct of day-to-day operations, 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 supple

mentary instructions from the Committee.

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

held on Tuesday, May 16, 1978, beginning at 9:30 a.m.

The meeting adjourned.

Secretary