FOMC Minutes

Meeting of Federal Open Market Committee

August 15, 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, August 15,

1978, at 9:30 a.m.

PRESENT:

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Miller, Chairman

Volcker, Vice Chairman

Baughman

Coldwell

Eastburn

Gardner

Jackson

Partee

Wallich

Willes

Winn

Messrs. Balles, Kimbrel, and Mayo, Alternate

Members of the Federal Open Market

Committee

Mr. Morris, President of the Federal Reserve

Bank of Boston

Mr.

Mr.

Mr.

Mr.

Altmann, Secretary

Bernard, Assistant Secretary

O'Connell, General Counsel

Axilrod, Economist

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

Kaminow, Keir, Truman, and Zeisel,

Associate Economists

Mr. Pardee, Deputy Manager for Foreign

Operations

Mr. Sternlight, Deputy Manager for Domestic

Operations

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8/15/78

Mr. Coyne, Assistant to the Board of

Governors

Mr. Kalchbrenner, Associate Director,

Division of Research and Statistics,

Board of Governors

Mr. Siegman, Associate Director, Division

of International Finance, Board of

Governors

Ms. Farar, Economist, Open Market Secretariat,

Board of Governors

Mrs. Deck, Staff Assistant, Open Market

Secretariat, Board of Governors

Messrs. Czerwinski, Moriarty, and Rankin,

First Vice Presidents, Federal

Reserve Banks of Kansas City, St.

Louis, and Richmond, respectively

Messrs. T. Davis, Eisenmenger, and Scheld,

Senior Vice Presidents, Federal

Reserve Banks of Kansas City, Boston,

and Chicago, respectively

Messrs. Brandt, Broaddus, and Keran, Vice

Presidents, Federal Reserve Banks of

Atlanta, Richmond, and San Francisco,

respectively

Mr. Burger, Assistant Vice President,

Federal Reserve Bank of St. Louis

Mr. Duprey, Senior Economist, Federal

Reserve Bank of Minneapolis

Ms.

Tschinkel, Adviser, Federal Reserve

Bank of New York

By unanimous vote, Murray Altmann was elected

Secretary of the Federal Open Market Committee to serve until

the election of his successor at the first meeting of the

Committee after February 28, 1979, with the understanding that

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8/15/78

in the event of the discontinuance of his official connection

with the Board of Governors, he would cease to have any

official connection with the Federal Open Market Committee.

By unanimous vote, the minutes of actions taken at

the meeting of the Federal Open Market Committee held on July

18, 1978, were approved.

By unanimous vote, System open market transactions

in foreign currencies during the period July 18 through

August 14,

1978, were ratified.

Renewal for further periods of 3 months of System

drawings on the German Federal Bank and the Swiss National

Bank maturing in the period September 1 through September 29,

1978, was noted without objection.

By unanimous vote, System open market transactions

in Government securities, agency obligations, and bankers'

acceptances during the period July 18 through August 14, 1978,

were ratified.

With Messrs. Partee and Willes dissenting, the

Federal Reserve Bank of New York was authorized and directed.

until otherwise directed by the Committee, to execute trans

actions in the System Account in accordance with the following

domestic policy directive:

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The information reviewed at this meeting

suggests that real output of goods and services is

growing moderately in the current quarter, although

the pace is a little less than the average for the

first two quarters of the year.

In July retail

sales remained at about the advanced level reached

in April.

Industrial production and nonfarm pay

roll employment continued to expand at lower rates

than in the early spring months. The unemployment

rate, which had dropped 0.4 of a percentage point

in June, jumped 0.5 of a percentage point in July

to 6.2 per cent, about the average rate in the

first 5 months of the year. Average prices of

goods and services have continued to rise rapidly,

although producer prices of foods and foodstuffs

declined in July. The advance in the index of

average hourly earnings has been somewhat faster

so far in 1978 than it had been on the average

during 1977.

Since mid-July the trade-weighted value of

the dollar against major foreign currencies has

declined sharply further. The U. S. trade deficit

was lower in the second quarter than the very high

rate of the first quarter.

Growth in M-1 remained moderate in July.

In

flows of the interest-bearing deposits included in

M-2 and M-3 picked up, owing to substantial flows

into large-denomination time deposits at banks and

into the new money market certificates at nonbank

thrift institutions. Nevertheless, expansion in

the broader aggregates also remained moderate in

July. Most market interest rates have declined

appreciably on balance in recent weeks.

In light of the foregoing developments, it is

the policy of the Federal Open Market Committee to

foster monetary and financial conditions that will

resist inflationary pressures while encouraging

continued moderate economic expansion and contri

buting to a sustainable pattern of international

transactions.

At its meeting on July 18, 1978, the

Committee agreed that these objectives would be

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furthered by growth of M-1, M-2, and M-3 from the

second quarter of 1978 to the second quarter of

1979 at rates 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. The associated range for bank credit

is 8-1/2 to 11-1/2 per cent. These ranges are

subject to reconsideration at any time as conditions

warrant.

In the short run, the Committee seeks to

achieve bank reserve and money market conditions

that are broadly consistent with the longer-run

ranges for monetary aggregates cited above, while

giving due regard to developing conditions in

domestic and international financial markets more

generally. Early in the period until the next

regular meeting, System open market operations

shall be directed at attaining a weekly-average

Federal funds rate slightly above the current

level.

Subsequently, operations shall be directed

at maintaining the weekly-average Federal funds

rate within the range of 7-3/4 to 8-1/4 per cent.

In deciding on the specific objective for the

Federal funds rate the Manager shall be guided

mainly by the relationship between the latest

estimates of annual rates of growth in the

August-September period of M-1 and M-2 and the

following ranges of tolerance:

4 to 8 per cent

for M-1 and 6 to 10 per cent for M-2. If, giving

approximately equal weight to M-1 and M-2, their

rates of growth appear to be significantly above

or below the midpoints of the indicated ranges,

the objective for the funds rate shall be raised

or lowered in an orderly fashion within its range.

If the rates of growth in the aggregates appear

to be above the upper limit or below the lower limit

of the indicated ranges at a time when the objective

for the funds rate has already been moved to the

corresponding limit of its range, the Manager is

promptly to notify the Chairman who will then decide

whether the situation calls for supplementary

instructions from the Committee.

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It was agreed that the next meeting of the Committee

would be held on Tuesday, September 19, 1978, beginning at

9:30 a.m.

The meeting adjourned.

Secretary