FOMC Minutes

Meeting of Federal Open Market Committee

July 11,

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 Wednesday, July 11,

1979,

beginning at 9:00 a.m.

PRESENT:

Mr. Miller, Chairman

Mr. Volcker, Vice Chairman

Mr. Balles

Mr. Black

Mr. Coldwell

Mr. Kimbrel

Mr. Mayo

Mr. Partee

Mr. Rice

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, Henry, Keir, Keran,

Kichline, Parthemos, Scheld, Truman,

and Zeisel, Associate Economists

Mr. Sternlight, Deputy Manager for Domestic

Operations

Mr. Pardee, Deputy Manager for Foreign

Operations

Mr. Coyne, Assistant to the Board of

Governors

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7/11/79

Messrs. Kalchbrenner and Siegman, Associate

Directors, Divisions of Research and

Statistics and International Finance,

respectively, Board of Governors

Mr. Prell 1/, Associate Research Division

Officer, 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

Messrs. Balbach, Boehne, J. Davis, Eisen

menger, and Fousek, Senior Vice Presi

dents, Federal Reserve Banks of St.

Louis, Philadelphia, Cleveland, Boston,

and New York, respectively

Messrs. Burns, Danforth, and T. Davis, Vice

Presidents, Federal Reserve Banks of

Dallas, Minneapolis, and Kansas City,

respectively

Ms. Clarkin, Securities Trading Officer,

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 May 22,

1979, were approved.

By unanimous vote, System open market transactions in

foreign currencies during the period May 22 through July 10,

1979, were ratified.

By unanimous vote, System open market transactions in

Government securities, agency obligations, and bankers acceptances

during the period May 22 through July 10, 1978, were ratified.

Mr. Prell entered the meeting following the votes to ratify

1/

System open market transactions and left following the vote to

adopt the domestic policy directive.

7/11/79

- 3

With Mr. Wallich 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 1979:

cent;

M-1, 1-1/2 to 4-1/2 percent;

and M-3, 6 to 9 percent.

credit

M-2, 5 to 8 per

The associated range for bank

is 7-1/2 to 10-1/2 percent.

By unanimous vote, the Committee agreed that for

the period from the fourth quarter of 1979 to the fourth

quarter of 1980, growth of M-1, M-2, and M-3,

and of commercial

bank credit, might be within the ranges adopted for 1979,

depending upon emerging economic conditions and appropriate

adjustments that may be required by legislation or judicial

developments affecting interest-bearing transactions accounts.

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 real output of goods and services

declined somewhat in the second quarter, as slacken

ing in demands was intensified by reduced: supplies

and sharply higher prices of motor fuels.

During

the quarter, the dollar value of retail sales declined,

and in real terms, sales in June were substantially

below last December.

Growth in nonfarm payroll

employment slowed during the quarter to a pace

considerably below the preceding six months, but

the unemployment rate in June, at 5.6 percent, was

somewhat lower than earlier in the year.

Industrial

production recovered in May, after having declined

in April in large part because of a work stoppage.

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Over the first half of this year, broad measures

of prices increased at a much faster pace than during

1978, although producer prices of foods declined in

the second quarter.

The rise in the index of average

hourly earnings has slowed in recent months.

Downward pressure on the dollar in foreign

exchange markets emerged in mid-June after several

months of strength, and since then the trade-weighted

value of the dollar against major foreign currencies

has declined about 3 percent.

The U.S. trade deficit

for April and May combined widened somewhat from the

first-quarter rate.

M-1 expanded sharply in June, after having increased

little in May, and M-2 and M-3 also grew rapidly.

Inflows

of interest-bearing deposits included in M-2 grew rapidly

in June, as net flows into money market certificates at

commercial banks expanded further and savings deposits

increased for the first time since last September.

At

nonbank thrift institutions, inflows of deposits picked

up from the sharply reduced pace in May.

On a quarterly

average basis, M-1 grew at an annual rate of about 7-1/2

percent in the second quarter, compared with a decline

at a rate of about 2 percent in the first quarter; M-2

and M-3 grew at rates of about 8-1/2 percent and 7-3/4

percent respectively in the second quarter, compared

with rates of about 1-3/4 percent and 4-3/4 percent

in the first quarter.

Market interest rates in general

have declined substantially over the past several weeks,

but mortgage interest rates have risen further.

Taking account of past and prospective developments

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 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 percent,

and 6 to 9 percent respectively, the same ranges that had

been established in February.

Having established the

range for M-1 in February on the assumption that

expansion of ATS and NOW accounts would dampen growth

by about 3 percentage points over the year, the

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5 -

Committee also agreed that actual growth in M-1 might

vary in relation to its range to the extent of any

deviation from that estimate. The associated range for

The Committee

bank credit is 7-1/2 to 10-1/2 percent.

anticipates that for the period from the fourth quarter

of 1979 to the fourth quarter of 1980, growth may be

within the same ranges, depending upon emerging economic

conditions and appropriate adjustments that may be

required by legislation or judicial developments affecting

These ranges will

interest-bearing transactions accounts.

be reconsidered 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 July

August period of M-1 and M-2 and the following ranges of

tolerance:

2-1/2 to 6-1/2 percent for M-1 and 6-1/2

to 10-1/2 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 loweredin 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.

7/11/79

- 6 It was agreed that the next meeting of the Committee

would be held on Tuesday, August 14, 1979, beginning at 9:30 a.m.

The meeting adjourned.

Secretary