FOMC Minutes

Meeting of Federal Open Market Committee

April 17,

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, April 17,

1979, beginning at 9:30 a.m.

PRESENT:

Mr. Miller, Chairman

Mr. Volcker, Vice Chairman

Mr. Balles

Mr. Black

Mr. Coldwell

Mr. Kimbrel

Mr. Mayo

Mr. Partee

Mrs. Teeters

Mr. Wallich

Messrs. Guffey, Roos, and Winn, Alternate

Members of the Federal Open Market

Committee

Messrs. Baughman and Willes, Presidents of the

Federal Reserve Banks of Dallas and

Minneapolis, respectively

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Altmann, Secretary

Bernard, Assistant Secretary

Petersen, General Counsel

Oltman, Deputy General Counsel

Mannion, Assistant General Counsel

Axilrod, Economist

Messrs. Brandt, R. Davis, Ettin, Henry,

Keir, Keran, Kichline, Parthemos,

Scheld, Truman, and Zeisel, Associate

Economists

Mr. Holmes, Manager System Open Market

Account

Mr. Sternlight, Deputy Manager for

Domestic Operations

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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

Mrs. Deck, Staff Assistant, Open Market

Secretariat, Board of Governors

Messrs. McIntosh and Smoot, First Vice

Presidents, Federal Reserve Banks

of Boston and Philadelphia,

respectively

Messrs. Balbach, Boehne, J. Davis,

and Eisenmenger, Senior Vice

Presidents, Federal Reserve

Banks of St. Louis, Philadelphia,

Cleveland, and Boston, respectively

Messrs. Burns, Danforth, and T. Davis,

Vice Presidents, Federal Reserve

Banks of Dallas, Minneapolis, and

Kansas City, respectively

Mr. Levin, Manager, Securities Department,

Federal Reserve Bank of New York

Mr. John Morton, Economist, Division of

International Finance, Board of

Governors

By unanimous vote, the minutes of actions taken at

the meeting

March 20,

of the Federal Open Market Committee held on

1979, were approved.

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4/17/79

By unanimous vote, System open market transactions

in foreign currencies during the period March 20 through

April 16,

1979, were ratified.

By unanimous vote, System open market transactions

in Government securities, agency obligations, and bankers

acceptances during the period March 20 through April 16,

1979, were ratified.

With Messrs. Coldwell, Volcker, and Wallich 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:

The information reviewed at this meeting

suggests that in the first quarter of 1979

growth in real output of goods and services

slowed substantially from the rapid rate in

the last quarter of 1978, while the rise in

prices accelerated.

In March the dollar

value of total retail sales, industrial pro

duction, and nonfarm payroll employment

expanded considerably, but part of the

strength was attributable to recovery from

the effects of severe weather in the pre

ceding two months.

For the first quarter

as a whole, retail sales in real terms dec

lined somewhat, following a sharp increase in

the fourth quarter of 1978, and the advance

in industrial output slowed appreciably.

Growth in employment remained strong in the

quarter, however, and the unemployment rate

in March, at 5.7 percent, was virtually

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first two months of 1979.

Over recent months,

broad measures of prices have increased at a

faster pace than during 1978, and the index

of average hourly earnings has continued to

rise rapidly.

The trade-weighted value of the dollar

against major foreign currencies has risen

over the past four weeks, with the dollar

showing particular strength against the yen,

the Swiss franc, and the mark. The U. S.

trade deficit in February was about half the

size of the large deficit in January, but the

average for the two months was above the

monthly average in the fourth quarter of

1978.

M-1 increased slightly in March after

having declined in both January and February.

With market interest rates continuing high,

inflows of the interest-bearing deposits

included in M-2 and M-3 remained at reduced

levels, despite substantial flows into money

market certificates at both commercial banks

and nonbank thrift institutions, and the

broader monetary aggregates continued to grow

at relatively slow rates.

From the fourth

quarter of 1978 to the first quarter of 1979,

M-1 declined at an annual rate of about 2-1/2

percent, in part because of the effects of

the growth of the automatic transfer service,

and M-2 and M-3 grew at rates of about 1-1/2

percent and 4-1/2 percent, respectively.

The

behavior of all three monetary aggregates was

affected by shifts of funds from deposits to

money market mutual funds and other liquid

assets.

Since mid-March, market interest

rates generally have risen somewhat, on

balance.

Taking account of past and propective [prospective]

developments in employment, unemployment,

production, investment, real income, pro

ductivity, international trade, and payments,

and prices, it is the policy of the Federal

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Open Market Committee to foster monetary and

financial conditions that will resist inflationary

pressures while encouraging moderate economic

expansion and contributing to a sustainable 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 percent, 5 to 8

The

percent, and 6 to 9 percent, respectively.

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

10-1/2 percent.

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 the

foreign exchange value of the dollar and to

developing conditions in domestic financial markets.

Early 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.

Subsequently, operations

shall be directed at maintaining the weekly average

federal funds rate within the range of 9-3/4 to

10-1/2 percent.

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 April-May period of M-1 and M-2 and the following

ranges of tolerance:

4 to 8 percent for M-1 and

4 to 8-1/2 percent for M-2.

If, with approximately

equal weight given to M-1 and M-2, their rates of

growth appear to be close to or beyond the upper or

lower limits of the indicated ranges, the objective

for the funds rate is to 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

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for the funds rate has already been moved to

the corresponding limit of its range, the

Manager will promptly notify the Chairman,

who will then decide whether the situation

calls for supplementary instructions from the

Committee.

By unanimous vote, System renewal for further periods

of 3 months of System drawings on the German Federal Bank

maturing in the period May 7-9, 1979, was noted without

objection.

Following the preceding action, Mr. Morton entered

the meeting.

It was agreed that the next meeting of the Committee

would be held on Tuesday, May 22, 1979, beginning a 9:30 a.m.

The meeting adjourned.

Secretary