FOMC Minutes

Meeting of Federal Open Market Committee

February 4-5

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 Monday, February 4, 1980, at 4:50 p.m.

and continuing on Tuesday, February 5, 1980, at 9:00 a.m.

PRESENT:

Mr. Volcker, Chairman

Mr. Balles

Mr. Black

Mr.

Mr.

Mr.

Mr.

Coldwell

Kimbrel

Mayo

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 Willes, Presidents of the

Federal Reserve Banks of Dallas and Minneapolis,

respectively

Mr. Altmann, Secretary

Mr. Bernard, Assistant Secretary

Mr.

Mr.

Mr.

Mr.

Mr.

Petersen, General Counsel

Oltman, Deputy General Counsel

Mannion, Assistant General Counsel

Axilrod, Economist

Holmes, Adviser for Market Operations

Messrs. Brandt, R. Davis, Ettin, Henry, Keir,

Keran, Kichline, Scheld, and Truman,

Associate Economists

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Mr. Sternlight, Manager for Domestic Operations,

System Open Market Account

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

Mr. Beck, Senior Economist, 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. Smoot, First Vice President, Federal Reserve

Bank of Philadelphia

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

Eisenmenger, Senior Vice Presidents, Federal

Reserve Banks of St. Louis, New York, Cleveland,

Kansas City, and Boston, respectively

Messrs. Broaddus, Danforth, Mullineaux, and Sandberg,

Vice Presidents, Federal Reserve Banks of Richmond,

Minneapolis, Philadelphia, and New York, respectively

By unanimous vote, System open market transactions in foreign

currencies during the period January 9 through February 3, 1980, were

ratified.

Renewal for further periods of three months of System drawings

on the German Federal Bank maturing March 5 through March 28, 1980, was

noted without objection.

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By unanimous vote, the minutes of actions taken at the meeting

of the Federal Open Market Committee held on January 8-9, 1980, were

approved.

By unanimous vote, System open market transactions in Govern

ment securities, agency obligations, and bankers acceptances during the

period January 9 through February 3, 1980, were ratified.

The following actions were taken on Tuesday, February 5, 1980.

By unanimous vote, the Committee adopted the following ranges

for rates of growth in monetary aggregates for the period from the fourth

quarter of 1979 to the fourth quarter of 1980:

M-1A, 3½ to 6 percent;

M-1B, 4 to 6½ percent; M-2, 6 to 9 percent; and M-3, 6½ to 9½ percent.

The associated range for bank credit is 6 to 9 percent.

With Messrs. Coldwell 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

that real output of goods and services expanded some

what in the final quarter of 1979 and that prices on

the average continued to rise rapidly. In December

retail sales strengthened, industrial production edged

up, and nonfarm payroll employment continued to rise,

while private housing starts remained at the reduced

level of November. Nonfarm payroll employment rose

substantially further in January, but the unemployment

rate rose from 5.9 to 6.2 percent. Producer prices of

finished goods and consumer prices continued to rise

rapidly toward the end of 1979, in part because of

the spreading effects of earlier increases in energy

costs. Over the past several months the rise in the

index of average hourly earnings has remained close

to the rapid pace recorded earlier in 1979.

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The trade-weighted value of the dollar against

major foreign currencies changed little in January,

and exchange market pressures were relatively slight

in spite of increased international political tensions.

The U.S. foreign trade deficit rose in December, in

large part because of an increase in imports of

petroleum.

Growth of the major monetary aggregates, which

had subsided in the final months of 1979, remained at

reduced rates in January. Most market interest rates,

especially long-term rates, have risen since the

Committee's meeting in early January.

Taking account of past and prospective economic

developments, the Federal Open Market Committee seeks

to foster monetary and financial conditions that will

resist inflationary pressures while encouraging moder

ate economic expansion and contributing to a sustain

able pattern of international transactions. The

Committee agreed that these objectives would be

furthered by growth of M-1A, M-1B, M-2, and M-3 from

the fourth quarter of 1979 to the fourth quarter of

1980 within ranges of 3½ to 6, 4 to 6½, 6 to 9, and

6½ to 9½ percent respectively. The associated range

for bank credit was 6 to 9 percent.

In the short run, the Committee seeks expansion

of reserve aggregates consistent with growth over

the first quarter of 1980 at an annual rate of about

4 percent for M-1A and 5 percent for M-1B, provided

that in the period before the next regular meeting

the weekly average federal funds rate remains within

a range of 11½ to 15 percent. The Committee believes

that, consistent with this short-run policy, M-2

as newly defined should grow at an annual rate of

about 6 percent over the first quarter.

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

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

held on Tuesday, March 18, 1980, beginning at 9:30 a.m.

The meeting adjourned.

Secretary