FOMC Minutes

Meeting of Federal Open Market Committee

January 8-9, 1980

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., starting on Tuesday, January 8, 1980, at 3:30 p.m.

and continuing on Wednesday, January 9, 1980, at 9:15 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.

Altmann, Secretary

Bernard, Assistant Secretary

Petersen, 1/ General Counsel

Oltman, Deputy General Counsel

Mannion, Assistant General Counsel

Mr. Axilrod, Economist

Mr. Holmes, Adviser for Market Operations

Messrs. Brandt, Ettin, Henry, Keir, Keran,

Kichline, Parthemos, Scheld, and Truman,

Associate Economists

Mr. Sternlight, Manager for Domestic Operations,

System Open Market Account

1/ Entered the meeting prior to the action to adopt the domestic

policy directive.

1/8-9/80

Mr. Pardee, Manager for Foreign Operations,

System Open Market Account

Mr. Coyne, Assistant to the Board of Governors

Messrs. Kalchbrenner and Prell, Associate

Directors, Division of Research and Statistics,

Board of Governors

Mr. Siegman, Associate Director, Division of

International Finance, Board of Governors

Messrs. Beck and Simpson, 1/ Senior Economists,

Banking Section, 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

Mr. McIntosh, First Vice President, Federal Reserve

Bank of Boston

Messrs. Balbach, Burns, Corrigan, J. Davis, T. Davis,

Eisenmenger, and Fousek, Senior Vice Presidents,

Federal Reserve Banks of St. Louis, Dallas, New

York, Cleveland, Kansas City, Boston, and New York,

respectively

Messrs. Danforth and Mullineaux, Vice Presidents,

Federal Reserve Banks of Minneapolis and

Philadelphia, respectively

Mr. Meek, Monetary Adviser, 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 November 20, 1979, were

approved.

The following actions were taken on Wednesday, January 9, 1980.

By unanimous vote, System open market transactions in Govern

ment securities, agency obligations, and bankers acceptances during the

period November 20, 1979 through January 8, 1980, were ratified.

2/ Attended Tuesday session only.

1/8-9/80

By unanimous vote, System open market transactions in foreign

currencies during the period November 20, 1979 through January 8, 1980,

were ratified.

Renewal for further periods of three months of System drawings

on the German Federal Bank maturing January 21 through February 14, 1980,

was noted without objection.

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 follow

ing domestic policy directive:

The information reviewed at this meeting suggests

that real output of goods and services expanded somewhat

further in the final quarter of 1979 and that prices on

the average continued to rise rapidly. In November retail

sales strengthened and nonfarm payroll employment rose con

siderably further, but industrial production declined some

what and private housing starts fell. The unemployment

rate edged down from 6.0 to 5.8 percent. Producer prices

of finished goods and consumer prices continued to rise

rapidly, in part because of the spreading effects of earlier

increases in energy costs. Over recent months the rise in

the index of average hourly earnings has remained close to

the rapid pace during 1978.

The trade-weighted value of the dollar against major

foreign currencies has depreciated about 3 percent since

mid-November, reflecting in large part the mid-East situa

tion as well as a firming of monetary conditions in a

number of foreign countries. The U.S. foreign trade deficit

in October and November on the average was slightly below

the rate for the third quarter.

Growth of the major monetary aggregates, which had

slowed in October, remained at reduced rates in the final

months of 1979. From the fourth quarter of 1978 to the

fourth quarter of 1979 M-1 grew 5-1/2 percent, M-2 about

8-1/4 percent, and M-3 about 8 percent. Most market

interest rates have declined somewhat on balance since

the Committee's meeting in late November.

1/8-9/80

Taking account of past and prospective developments

in employment, unemployment, production, investment, 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 percent, and 6 to 9 per

cent respectively. It appeared that expansion of ATS and

NOW accounts would dampen growth of M-1 by about 1-1/2 per

centage points over the year, half as much as assumed early

in the year; thus after allowance for the deviation from

the earlier estimate, the equivalent range for M-1 was 3 to

6 percent. The associated range for bank credit was 7-1/2

to 10-1/2 percent. The Committee anticipated 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. Ranges for

1980 will be reconsidered at the meeting of the Committee

scheduled for early February.

In the short run, the Committee seeks expansion of

reserve aggregates consistent with growth over the first

quarter of 1980 at an annual rate between 4 and 5 percent

for M-1 and on the order of 7 percent for M-2, 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, transfer to the National Archives of the

FOMC memoranda of discussion for 1974, on the basis described in a

memorandum from the Secretariat dated December 5, 1979, was authorized.

-5

1/8-9/80

It was agreed that the next meeting of the Committee would be

held on Tuesday, February 5, 1980, beginning at 9:30 a.m.

The meeting adjourned.

Secretary