FOMC Minutes

Meeting of the Federal Open Market Committee

May 20, 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.,

on Tuesday, May 20, 1980,

at 9:30 a.m.

PRESENT:

Mr. Volcker, Chairman

Mr. Guffey

Mr. Morris

Mr. Partee

Mr. Rice

Mr. Roos

Mr. Schultz

Mr. Solomon

Mrs. Teeters

Mr. Wallich

Mr. Winn

Messrs. Baughman, Eastburn, and Mayo, Alternate

Members of the Federal Open Market

Committee

Messrs. Balles and Black, Presidents of the

Federal Reserve Banks of San Francisco and

Richmond, respectively

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Altmann, Secretary

Bernard, Assistant Secretary

Petersen, General Counsel

Oltman, Deputy General Counsel

Mannion, Assistant General Counsel

Axilrod, Economist

Holmes, Adviser for Market Operations

Messrs. Balbach, J. Davis, T. Davis, Ettin,

Henry, Keir, Kichline, and Zeisel,

Associate Economists

Mr. Sternlight, Manager for Domestic

Operations, System Open Market Account

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Mr. Pardee, Manager for Foreign Operations,

System Open Market Account

Mr. Coyne, Assistant to the Board of

Governors

Mr. Prell, Associate Director, 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

Messrs. Forrestal, Gainor, and McIntosh,

First Vice Presidents, Federal Reserve

Banks of Atlanta, Minneapolis, and

Boston, respectively

Messrs. Brandt, Burns, Fousek, Keran, and

Scheld, Senior Vice Presidents, Federal

Reserve Banks of Atlanta, Dallas, New

York, San Francisco, and Chicago,

respectively

Messrs. Broaddus, Danforth, and Mullineaux,

Vice Presidents, Federal Reserve Banks

of Richmond, Minneapolis, and

Philadelphia, respectively

Mr. Levin, Manager, Securities Department,

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

April 22, 1980, were approved.

By unanimous vote, System open market transactions

in foreign currencies during the period April 22 through May 19,

1980, were ratified.

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By unanimous vote, the amount of the reciprocal

currency arrangement with the Bank of Sweden specified in

paragraph 2 of the Authorization for Foreign Currency Operations

was raised to $500 million, effective May 23, 1980, for a period

of one year, after which it will revert to its current level

of $300 million.

Renewal for further periods of three months of System

drawings on the German Federal Bank and the Banque de France

maturing July 14 through 18, 1980, was noted without objection.

By unanimous vote, System open market transactions

in Government securities, agency obligations, and bankers

acceptances during the period April 22 through May 19, 1980,

were ratified.

With Messrs. Partee and Roos 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 a marked contraction in real GNP in the

current quarter.

In April the dollar value of

total retail sales declined substantially for the

third consecutive month.

Industrial production

and nonfarm payroll employment were curtailed

sharply, and theunemployment rate rose from 6.2

to 7.0 percent.

Private housing starts, which

had declined throughout the first quarter to a

relatively low rate, edged down further in April.

The overall rise in prices of goods and services

has remained rapid in recent months, although in

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April the rise in producer prices of finished goods

was slowed by a large decrease in foods and by a

lessening of the rapid rise in energy items. Over

the first four months of the year, the rise in the

index of average hourly earnings was somewhat less

than the rapid pace recorded in 1979.

The downward pressure on the dollar in exchange

markets that emerged in early April has continued

over most of the past four weeks, in response

primarily to the sharp decline in U. S. interest

rates relative to foreign interest rates; the trade

weighted value of the dollar against major foreign

The

currencies has declined about 3-1/2 percent.

U. S. foreign trade deficit was substantially larger

in the first quarter of 1980 than in the preceding

quarter, despite a considerable decline in March

from the average in the preceding two months.

M-1A and M-1B contracted sharply further in

April, and M-2 also declined. Commercial bank

credit, both loans and investments, contracted in

April after having slowed substantially in March.

Over recent weeks, market interest rates have

declined sharply further.

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 en

couraging moderate economic expansion and con

tributing to a sustainable pattern of international

transactions. At its meeting on February 4-5, 1980,

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 3-1/2 to 6, 4 to

6-1/2, 6 to 9, and 6-1/2 to 9-1/2 percent respec

tively. 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 of M-1A,

M-1B, and M-2 at rates high enough to promote achieve

ment of the Committee's objectives for monetary

growth over the year, provided that in the period

before the next regular meeting the weekly average

federal funds rate remains within a range of 8-1/2

to 14 percent.

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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 Wednesday, July 9, 1980, beginning at 9:30 a.m.

The meeting adjourned.

Secretary