FOMC Minutes

Meeting of Federal Open Market Committee

November 20, 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, November 20,

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, 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

Mannion, 1/ Assistant General Counsel

Axilrod, Economist

Holmes, Adviser for Market Operations

Messrs. Brandt, Henry, Keir, Kichline,

Scheld, Truman, and Zeisel, Associate

Economists

Mr. Sternlight, Manager for Domestic

Operations, System Open Market Account

1/

Entered the meeting following the ratification of System

open market transactions in Government securities, agency

obligations and bankers acceptances.

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Mr. Pardee, Manager for Foreign Operations,

System Open Market Account

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, Deputy Associate Director,

Division of Research and Statistics,

Board of Governors

Mr. Beck, Senior Economist, Banking Section,

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. Balbach, Boehne, Burns, J. Davis,

Eisenmenger, and Fousek, Senior Vice

Presidents, Federal Reserve Banks of

St. Louis, Philadelphia, Dallas,

Cleveland, Boston, and New York,

respectively

Messrs. Bakstansky, Broaddus, Corrigan,

and T. Davis, Vice Presidents,

Federal Reserve Banks of New York,

Richmond, New York, and Kansas

City, respectively

Mr. Bisignano, Director of Economic Analysis,

Federal Reserve Bank of San Francisco

Mr. Miller, Assistant Vice President, Federal

Reserve Bank of Minneapolis

Mr. Ozog, Manager, Securities Department,

Federal Reserve Bank of New York

By unanimous vote, the minutes of actions taken at

the meetings of the Federal Open Market Committee held on

September 18 and October 6, 1979, were approved.

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11/20/79

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By unanimous vote, System open market transactions

in

foreign currencies during the periods September 18 through

October 5 and October 6 through November 19, 1979, were ratified.

Renewal for further periods of three months of System

drawings on the German Federal Bank maturing December 7 through

28, 1979, was noted without objection.

By unanimous vote, the Committee approved the re

newal for further periods of up to one year of the following

swap arrangements, having the indicated amounts and maturity

dates:

Foreign bank

Amount of

arrangement

(millions of

$ equilavent)

Austrian National

Bank

$

250.0

Bank of England

3,000.0

Bank of Japan

5,000.0

Bank of Mexico

700.0

Bank of Norway

250.0

Bank of Sweden

300.0

Swiss National Bank

4,000.0

Bank for International

Settlements600.0

Swiss francs

Other authorized

European cur

1,250.0

rencies

National Bank of

1,000.0

Belgium

National Bank of

250.0

Denmark

6,000.0

German Federal Bank

2,000.0

Bank of France

500.0

Netherlands Bank

2,000.0

Bank of Canada

3,000.0

Bank of Italy

Term

(months)

Maturity

date

12 mos.

"

12/4/79

12/4/79

12/4/79

12/4/79

12/4/79

12/4/79

12/4/79

"

"

12/4/79

12/4/79

12/20/79

12/28/79

12/28/79

12/28/79

12/28/79

12/28/79

12/28/79

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By unanimous vote, System open market transactions

in Government securities, agency obligations, and bankers

acceptances during the periods September 18 through October 5

and October 6 through November 19, 1979, were ratified.

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 sug

gests that real output of goods and services is

declining in the current quarter, after the third

quarter rebound, and that prices on the average are

continuing to rise rapidly.

Retail sales, which had

expanded sharply during the third quarter in both

constant and current dollars, dropped in October.

Industrial production remained near its midyear

level.

Nonfarm payroll employment rose consider

ably, after three months of little growth, but the

unemployment rate increased from 5.8 to 6.0 percent.

Producer prices of finished goods continued to rise

rapidly in October, in part because of further sharp

increases in energy items and the spreading effects

of earlier increases in energy costs.

The rise in

the index of average hourly earnings during the first

10 months of the year was close to the rapid pace

during 1978.

On October 6 the Federal Reserve announced a

series of complementary actions directed toward

assuring control over the expansion.of money and

bank credit and toward curbing speculative excesses

in commodity and financial markets, including foreign

exchange markets.

The actions included an increase

in Federal Reserve Bank discount rates from 11 per

cent to 12 percent; establishment of a marginal

reserve requirement on increases in the total of

managed liabilities of member banks, Edge corpora

tions, and U. S. agencies and branches of foreign

banks; and a shift in the conduct of open market

operations to an approach placing greater emphasis

in day-to-day operations on the supply of bank

reserves and less emphasis on confining short-term

fluctuations in the federal funds rate.

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Following the announcement on October 6, the

downward pressure on the dollar in the exchange

markets that had developed in September was reversed,

and by the end of October the trade-weighted value

of the dollar against major foreign currencies had

In mid-November, however,

risen about 3-1/2 percent.

reflecting in part

declined,

the

dollar

of

value

the

U. S. foreign

The

Iran.

developments concerning

trade deficit increased in September as the cost of

oil imports rose, but the deficit was somewhat lower

for the third quarter as a whole than for the second

quarter.

Growth of M-1, which had accelerated in September

and was exceptionally rapid in the third quarter as a

whole, slowed sharply in October to an annual rate of

Expansion of interest-bearing deposits

2-1/2 percent.

included in M-2 remained strong, as a rise in net

flows into time deposits at commercial banks in res

ponse to increased yields offset a contraction in

Inflows of deposits at nonbank

savings deposits.

Flows into

thrift institutions slowed somewhat.

Growth of

money market mutual funds accelerated.

commercial bank credit moderated in October; never

theless, banks increased their reliance on the negoti

able, large-denomination CD's and other managed

liabilities that became subject to the marginal

reserve requirement in the statement week beginning

Both short- and long-term market

October 11.

interest rates have risen sharply on balance since

the early October announcement of the System's

policy actions, although most recently rates have

declined; mortgage interest rates have increased

substantially further.

Taking account of past and prospective develop

ments in employment, unemployment, production, invest

ment, real income, productivity, international trade

and payments, and prices, the Federal Open Market

Committee seeks 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.

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 per

cent, and 6 to 9 percent respectively, the same ranges

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The range for

that had been established in February.

M-1 had been established originally on the basis of

an assumption that expansion of ATS and NOW accounts

would dampen growth by about 3 percentage points over

It now appears that expansion of such

the year.

accounts will dampen growth by about 1-1/2 percentage

points over the year; thus after allowance for the

deviation from the earlier estimate, the equivalent

The associated

range for M-1 is now 3 to 6 percent.

7-1/2

to

10-1/2

percent.

range for bank credit is

from

that

for

the

period

The Committee anticipates

of

to

the

fourth

quarter

the fourth quarter of 1979

the

same

ranges,

depending

1980, growth may be within

upon emerging economic conditions and appropriate

adjustments that may be required by legislation or

judicical developments affecting interest-bearing

transactions accounts.

These ranges will be recon

sidered at any time as conditions warrant.

In the short run, the Committee seeks to

restrain expansion of reserve aggregates to a pace

consistent with deceleration in growth of M-1, M-2,

and M-3 in the fourth quarter of 1979 to rates that

would hold growth of these monetary aggregates over

the whole period from the fourth quarter of 1978 to

the fourth quarter of 1979 within the Committee's

longer-run ranges, provided that in the period

before the next regular meeting the weekly average

federal funds rate remains within a range of 11-1/2

to 15-1/2 percent.

If it appears during the period before the

next meeting that the constraint on the federal funds

rate is inconsistent with the objective for the

expansion of reserves, the Manager for Domestic

Operations is promptly to notify the Chairman who

will then decide whether the situation calls for

supplementary instructions from the.Committee.

By unanimous vote, responsibility for making deter

minations with respect to appeals of denial of access to

Committee records, under the provisions of 271.4(d) of the

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Committee's Rules Regarding Availability of Information, was

delegated to Mr. Schultz, and in his absence, to Mr. Coldwell.

It was agreed that the next meeting of the Committee

would be held on Wednesday, January 9, 1980, beginning at

9:30 a.m.

The meeting adjourned.

Secretary