FOMC Minutes

Meeting of Federal Open Market Committee

February 6, 1979

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 6,

1979, at 9:00 a.m.

PRESENT:

Mr. Miller, Chairman

Mr. Volcker, Vice Chairman

Mr. Baughman

Mr. Coldwell

Mr. Eastburn

Mr. Partee

Mrs. Teeters

Mr. Wallich

Mr. Willes

Mr. Mayo, Alternate

Messrs. Balles and Black, Alternate Members of

Federal Open Market Committee

Messrs. Guffey, Morris, and Roos, Presidents

of the Federal Reserve Banks of Kansas

City, Boston, and St. Louis, respectively

Mr.

Mr.

Mr.

Mr.

Mr.

Altmann, Secretary

Bernard, Assistant Secretary

Guy, Deputy General Counsel

Mannion, Assistant General Counsel

Axilrod, Economist

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

Keir, Kichline, Paulus, Truman,

and Zeisel, Associate Economists

Mr

Holmes, Manager, System Open Market

Account

- 2 -

2/6/79

Mr. Sternlight, Deputy Manager for

Domestic Operations

Mr. Pardee, Deputy Manager for Foreign

Operations

Mr. Coyne, Assistant to the Board of

Governors

Mr. Kalchbrenner, Associate Director,

Division of Research and Statistics,

Board of Governors

Mr. Gemmill, Associate Director,

Division of International Finance,

Board of Governors

Ms. Farar, Economist, Open Market

Secretariat, Board of Governors

Ms. Belton, Secretary, Open Market

Secretariat, Board of Governors

Messrs. Fossum and MacDonald, First Vice

Presidents, Federal Reserve Banks

of Atlanta and Cleveland, respectively

Messrs. Balbach, Boehne, Brandt, T.

Davis, Eisenmenger, Keran,

Parthemos, and Scheld, Senior

Vice Presidents, Federal Reserve

Banks of St. Louis, Philadelphia,

Kansas City, Atlanta, Boston,

San Francisco, Richmond, and

Chicago, respectively

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

December 19, 1978, were approved.

By unanimous vote, System open market transactions

in foreign currencies during the period December 19,

through February 5,

1979, were ratified.

1978,

-

2/6/79

3 -

By unanimous vote, System open market transactions

in Government securities, agency obligations, and bankers'

acceptances during the period December 19,

February 5,

1978, through

1979, were ratified.

With Messrs. Wallich and Willes dissenting, the

Committee adopted the following ranges for rates of growth

in monetary aggregates for the period from the fourth quarter

of 1978 to the

fourth quarter of

per cent; M-2, 5 to 8 per cent;

1979: M-1, 1-1/2 to 4-1/2

and M-3, 6 to 9 per cent.

The associated range for bank credit is 7-1/2 to 10-1/2

per cent.

With Mr. Coldwell dissenting, the Federal Reserve

Bank of New York was authorized and directed, until other

wise 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 in the fourth quarter of 1978 growth

in real output of goods and services picked up

sharply from the reduced rate in the third quarter.

In December, as in the preceding 2 months, the

dollar value of total retail sales expanded sub

stantially, and industrial production and nonfarm

payroll employment rose considerably further.

Employment continued to grow in January, and the

unemployment rate, at 5.8 per cent, was virtually

the same as in the final months of 1978.

Over

recent months, broad measures of prices and the

index of average hourly earnings have continued

to rise rapidly.

2/6/79

-

4 -

The trade-weighted value of the dollar against

major foreign currencies has tended upward since

the turn of the year, returning to about its level

in mid-December prior to the OPEC announcement of

The U. S. trade deficit in

increased oil prices.

the fourth quarter of 1978 was at about the same

rate as in the second and third quarters.

M-1 increased little in December and appears

to have declined in January, in part because of the

continuing effects of the introduction of the

automatic transfer service (ATS) on November 1,

and M-2 and M-3 grew at relatively slow rates.

With market interest rates relatively high, in

flows to banks of the interest-bearing deposits

included in M-2 slowed sharply, and inflows of

deposits to nonbank thrift institutions slackened

further. Over the year from the fourth quarter of

1977 to the fourth quarter of 1978 M-1, M-2, and

M-3 grew about 7-1/4, 8-1/2, and 9-1/2 per cent,

respectively.

Most market interest rates have

declined on balance in recent weeks.

Taking account of past and prospective develop

ments in employment, unemployment, production,

investment, real income, productivity, international

trade and payments, and prices, it is the policy of

the Federal Open Market Committee to foster

monetary and financial conditions that will resist

inflationary pressures while encouraging moderate

economic expansion and contributing to a sustain

able pattern of international transactions. The

Committee agreed that these objectives would be

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

fourth quarter of 1978 to the fourth quarter of

1979 within ranges of 1-1/2 to 4-1/2 per cent,

5 to 8 per cent, and 6 to 9 per cent, respectively.

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

10-1/2 per cent.

These ranges will be reconsidered

in July or 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 the program for supporting

- 5 -

2/6/79

the foreign exchange value of the dollar and to

developing conditions in domestic financial

markets.

In the period before the next regular

meeting, System open market operations are to be

directed at maintaining the weekly average Federal

funds rate at about the current level, provided

that over the February-March period the annual

rates of growth of M-1 and M-2, given approxim

ately equal weight, appear to be within ranges of

3 to 7 per cent and 5 to 9 per cent, respectively.

If growth of M-1 and M-2 for the 2-month period

appears to be outside the indicated limits, the

Manager will promptly notify the Chairman, who

will then consult with the Committee to deter

mine whether the situation calls for supple

mentary instructions.

By unanimous vote, renewal for further periods of

3 months of System drawings on the German Federal Bank

maturing February 23, 1979, through March 30, 1979, was

authorized.

Renewal for further periods of 3 months of System

drawings on the Swiss National Bank maturing February 23,

1979, through March 30, 1979, was noted without objection.

By unanimous vote, the limit on

holdings of U.

S.

changes in System

government and Federal agency securities

specified in paragraph 1(a) of the Authorization for Domestic

Open Market Operations was set at $5 billion, effective

immediately, for the period ending with the close of business

March 20, 1979.

2/6/79

- 6 -

It was agreed that the next meeting of the Committee

would be held on Tuesday, March 20, 1979, beginning at 9:30

a.m.

The meeting adjourned.

Secretary