FOMC Minutes

Meeting of Federal Open Market Committee

September 18, 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, September 18,

1979, beginning at 9:30 a.m.

PRESENT:

Mr. Volcker, Chairman

Mr. Balles

Mr. Black

Mr. Coldwell

Mr. Kimbrel

Mr. Mayo

Mr. Partee

Mr. Rice

Mr. Schultz

Mrs. Teeters

Mr.Wallich

Messrs. Guffey, Morris, Roos, Timlen, and Winn,

Alternate Members of the Federal Open Market

Committee

Messrs. Baughman and Eastburn, Presidents of

the Federal Reserve Banks of Dallas and

Philadelphia, respectively

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Altmann, Secretary

Bernard, Assistant Secretary

Petersen, General Counsel

Oltman, Deputy General Counsel

Axilrod, Economist

Holmes, Adviser for Market Operations

Messrs. Ettin, Henry, Keir, Keran, Kichline,

Parthemos, Scheld, Truman, and Zeisel,

Associate Economists

Mr. Sternlight, Manager

Operations, System

Mr. Pardee, Manager for

System Open Market

for Domestic

Open Market Account

Foreign Operations,

Account

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9/18/79

Mr. Coyne, Assistant to the Board of

Governors

Messrs. Gemmill and Kalchbrenner, Associate

Directors, Division of International

Finance and Division of Research and

Statistics, respectively,Board of Governors

Mr. Prell, Associate Research Division

Officer, Division of Research and

Statistics, Board of Governors

Ms. Farar, Economist, Open Market Secre

tariat, Board of Governors

Mrs. Deck, Staff Assistant, Open Market

Secretariat, Board of Governors

Messrs. Forrestal, Gainor and Moriarty,

First Vice Presidents, Federal

Reserve Banks of Atlanta, Minneapolis,

and St. Louis, respectively

Messrs. Balbach, Boehne, Burns, T. Davis,

Eisenmenger, and Fousek, Senior Vice

Presidents, Federal Reserve Banks of

St. Louis, Philadelphia, Dallas, Kansas

City, Boston, and New York, respectively

Messrs. Corrigan and Danforth, Vice Presidents,

Federal Reserve Banks of New York and

Minneapolis, respectively

Ms. Lovett, 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 August

14, 1979, were approved.

By unanimous vote, System open market transactions in

foreign currencies during the period August 14 through September

17, 1979, were ratified.

Renewal for further periods of three months of System

drawings on the German Federal Bank maturing September 21

through October 26, 1979, was noted without objection.

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By unanimous vote, System open market transactions

in Government securities, agency obligations, and bankers

acceptances during the period August 14 through September 17,

1979, were ratified.

With Messrs. Balles, Black, Coldwell and Rice

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 that in the third quarter real output

of goods and services remained near the reduced

level of the preceding quarter and that prices on

In August,

the average continued to rise rapidly.

as in July, the dollar value of retail sales

expanded moderately, but sales in real terms

changed little and were substantially below those

of last December.

Industrial production dropped

from the May-July level, largely because of sharp

curtailments in output of motor vehicles and parts.

Nonfarm payroll employment was unchanged; the un

employment rate rose from 5.7 percent to 6.0 per

cent, thus moving above the narrow range in which it

had fluctuated since the beginning of the year.

Producer prices of finished goods continued to

rise rapidly in August, led by further large

increases in energy items and a substantial

advance in consumer foods following a significant

decline over the preceding four months. The rise

in the index of average hourly earnings over the

first eight months of this year was moderately

below the pace during 1978, but the increase in

total hourly compensation in the nonfarm business

sector has been about as rapid this year as last.

The dollar came under downward

foreign exchange markets in the last

and the early days of September, but

weighted value against major foreign

pressure in

days of August

its trade

currencies

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has changed little on balance since mid-August.

The U. S. trade deficit in July was sharply reduced

from the average in the first half of the year.

Growth of M-1, M-2, and M-3 was relatively

rapid in August and early September, although not

so rapid as in June and July. Market interest

rates have risen appreciably over recent weeks.

An increase in Federal Reserve discount rates from

10 to 10-1/2 percent was announced on August 16.

Taking account of past and prospective develop

ments in employment, unemployment, production, in

vestment, real income, productivity, international

trade and payments, and prices, the Federal Open Market

Committee seeks to foster monetary and financial con

ditions that will resist inflationary pressures while

encouraging moderate economic expansion and contri

buting to a sustainable pattern of international

transactions. At its meeting on July 11, 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 same ranges that had been established in

February. Having established the range for M-1 in

February on the assumption that expasnion of ATS

and NOW accounts would dampen growth by about 3

percentage points over the year, the 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 bank credit is 7-1/2 to 10-1/2 percent.

The Committee 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

interest-bearing transactions accounts. These

ranges will be reconsidered at any time as con

ditions 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

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foreign exchange and domestic financial markets.

Early in the period before the next regular meeting,

System open market operations are to be directed

at attaining a weekly average federal funds rate

Subsequently,

slightly above the current level.

operations shall be directed at maintaining the

weekly average federal funds rate within the

In deciding

range of 11-1/4 to 11-3/4 percent.

on the specific objective for the federal funds

rate the Manager for Domestic Operations shall be

guided mainly by the relationship between the

latest estimates of annual rates of growth in the

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

3 to 8 percent

following ranges of tolerance:

for M-1 and 6-1/2 to 10-1/2 percent for M-2. If

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

equal weight, 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 beyond the upper or lower limits 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 shall promptly

notify the Chairman, who will then decide whether

the situation calls for supplementary instructions

from the Committee.

It was agreed that the authorization for the lending

of Government securities from the System Open Market Account,

contained in paragraph 3 of the Authorization for Domestic

Open Market Operations, should be retained at this time,

subject to review in six months.

It was agreed that the next meeting of the Committee

would be held on Tuesday, October 16, 1979, beginning at 9:30.

a.m.

The meeting adjourned.

Secretary