FOMC Minutes

Meeting of Federal Open Market Committee

May 22, 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, May 22, 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, Morris, Roos, and Winn, Alternate

Members of the Federal Open Market Committee

Messrs. Baughman, Eastburn, and Willes, Presidents

of the Federal Reserve Banks of Dallas,

Philadelphia, 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, Ettin, Keir, Keran, Kichline,

Scheld, Truman, and Zeisel, Associate

Economists

Mr. Holmes, Manager System Open Market

Account

Mr. Sternlight, Deputy Manager for Domestic

Operations

Mr. Coyne, Assistant to the Board of

Governors

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Mr. Siegman, Associate Director, Division

of International Finance, Board of

Governors

Ms. Farar, Economist, Open Market Secre

tariat, Board of Governors

Mrs. Deck, Staff Assistant, Open Market

Secretariat, Board of Governors

Messrs. Balbach, J. Davis, Eisenmenger, and

Fousek, Senior Vice Presidents,

Federal Reserve Banks of St. Louis,

Cleveland, Boston, and New York,

respectively

Messrs. Broaddus, Burns, Danforth, T. Davis, Ms.

Greene, and Mr. Mullineaux, Vice Presidents,

Federal Reserve Banks of Richmond, Dallas,

Minneapolis, Kansas City, New York,and

Philadelphia, respectively

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

April 17, 1979, were approved.

By unanimous vote, System open market transactions in

foreign currencies during the period April 17 through May 21,

1979, were ratified.

By unanimous vote, System open market transactions in

Government securities, agency obligations, and bankers acceptances

during the period April 17 through May 21,

1979, were ratified.

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With Messrs. Balles, Partee, and Wallich dissenting,

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 a moderate pickup in growth of real

output of goods and services in the current

quarter from the sharply reduced pace in the

first quarter, when public and private construc

tion activity was adversely affected by unusually

severe weather. In April, however, industrial

production declined and growth in nonfarm pay

roll employment slowed, in large part owing to

effects of a work stoppage in the trucking

industry early in the month. The unemployment

rate, at 5.8 percent, remained at about the

level prevailing earlier in the year. The

dollar value of total retail sales rose some

what in April, although apparently by less than

the increase in average prices. 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.

Demand for the dollar has continued strong

in exchange markets over the past five weeks,

and the trade-weighted value of the dollar

against major foreign currencies has risen

further. The U. S. trade deficit declined

further in March and was slightly lower in the

first quarter as a whole than in the fourth

quarter of 1978.

M-1 expanded sharply in April, after having

declined in the first quarter, and M-2 and M-3

grew rapidly. The interest-bearing component

of M-2 also grew rapidly, following several

months of slow growth, as net flows into money

market certificates at commercial banks increased

while outflows of savings deposits slowed. At

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nonbank thrift institutions, net flows into

money market certificates moderated, and overall

inflows of funds receded from the already reduced

pace of the first quarter.

Since mid-April,

short-term market interest rates have changed

little, on balance; most longer-term rates have

increased.

Taking account of past and prospective

developments in employment, unemployment,

production, investment, real income, produc

tivity, 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 pres

sures while encouraging moderate economic

expansion and contributing to a sustainable

pattern of international transactions.

At

its meeting on February 6, 1979, 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 percent, and 6 to 9 percent respectively.

The 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 condi

tions warrant.

In the short-run, the Committee seeks to

achieve bank reserve and money market condi

tions 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 main

taining 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

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rate the Manager shall be guided mainly by the

relationship between the latest estimates of

annual rates of growth in the May-June period of

M-1 and M-2 and the following ranges of tolerance:

0 to 5 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 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.

It was agreed that the next meeting of the Committee

would be held on Wednesday, July 11, 1979, beginning at 9:30 a.m.

The meeting adjourned.

Secretary