FOMC Minutes

Meeting of the Federal Open Market Committee

July 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.,

on Wednesday, July 9,

1980, at 9:15 a.m.

PRESENT:

Mr. Volcker, Chairman

Mr. Gramley

Mr. Morris

Mr. Partee

Mr. Rice

Mr. Roos

Mr. Schultz

Mr. Solomon

Mrs. Teeters

Mr. Wallich

Mr. Winn

Messrs. Balles, Baughman, Eastburn, and Mayo,

Alternate Members of the Federal Open

Market Committee

Mr. Black, President of the Federal Reserve

Bank of Richmond

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,

Keir, Kichline, Truman, and Zeisel,

Associate Economists

Mr. Pardee, Manager for Foreign Operations,

System Open Market Account

7/9/80

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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

Mrs. Steele, Economist, Open Market

Secretariat, Board of Governors

Mrs. Scanlon, Economist, Division of

Research and Statistics, Board of

Governors 1/

Mrs. Deck, Staff Assistant, Open Market

Secretariat, Board of Governors

Messrs. Czerwinski, Forrestal, Gainor,

and Monhollon, First Vice Presidents,

Federal Reserve Banks of Kansas

City, Atlanta, Minneapolis, and

Richmond, respectively

Messrs. Brandt, Burns, Corrigan, Danforth,

Fousek, Keran, Parthemos, and Scheld,

Senior Vice Presidents, Federal Reserve

Banks of Atlanta, Dallas, New York,

Minneapolis, New York, San Francisco,

Richmond, and Chicago, respectively

Mr. Meek, Monetary Adviser, Federal Reserve

Bank of New York

Messrs. McNees, Mullineaux, and Ms. Nichols,

Vice Presidents, Federal Reserve Banks

of Boston, Philadelphia, and Chicago,

respectively

Ms. Lovett, Securities Trading Officer,

Federal Reserve Bank of New York

1/

Entered the meeting following the ratification of System

open market transactions in Government securities, agency

obligations and bankers

acceptances.

7/9/80

- 3 By unanimous vote, the minutes of actions taken at

the meeting of the Federal Open Market Committee held on

May 20, 1980, were approved.

Renewal for further periods of three months of System

drawings on the German Federal Bank maturing July 21 through

August 18,

1980, was noted without objection.

By unanimous vote, System open market transactions

in foreign currencies during the period May 20 through July 8,

1980, were ratified.

By unanimous vote, the limit on changes in System

holdings of U. S. government and federal agency securities

specified in paragraph 1(a) of the Authorization for Domestic

Open Market Operations was set at $4 billion, effective

immediately, for the period ending with the close of business

August 12,

1980.

By unanimous vote, System open market transactions

in Government securities, agency obligations, and bankers

acceptances during the period May 20 through July 8,

1980,

were ratified.

With Mr. Wallich dissenting, 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:

percent;

M-1A, 3-1/2 to 6 percent; M-1B, 4 to 6-1/2

M-2, 6 to 9;

and M-3, 6-1/2 to 9-1/2 percent.

associated range for bank credit

is 6 to 9 percent.

The

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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

indicates a marked contraction in real GNP in

the second quarter. In May total retail sales

declined substantially for the fourth consecu

tive month, and housing starts, industrial

production, and nonfarm payroll employment

continued to decline. Employment fell sharply

further in June; however, the unemployment rate

edged down from 7.8 to 7.7 percent, following

large increases in April and May. The overall

rise in prices of goods and services has moderated

in recent months, in large part owing to a less

ening of the rapid rise in energy items. Over

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

index of average hourly earnings was moderately

faster than the pace recorded in 1979.

The downward pressure on the dollar in

exchange markets that emerged in early April

abated in mid-June, and then was resumed in

early July. The average U.S. foreign trade

deficit for April and May was well below the

average for the first quarter, reflecting re

duced oil and non-oil imports.

Monetary expansion was rapid in June,

following weakness earlier in the spring. Over

the first half of the year growth of M-1A and

M-1B fell short of the rates consistent with

the Committee's ranges for the year from the

fourth quarter of 1979 to the fourth quarter

of 1980; the rate of growth for M-2 was just

above the lower bound of its range. Outstand

ing bank loans to business declined substan

tially during the second quarter following a

large increase in the first quarter. Market

interest rates declined considerably further

in late May and the first half of June, but

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5

since then most rates have retraced part of the

decline.

Reductions in Federal Reserve discount

rates from 13 to 11 percent in equal steps were

announced on May 28 and June 12.

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

moderate economic expansion and contributing to a

sustainable pattern of international transactions.

The Committee agrees 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 percent, 4 to 6-1/2

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

spectively.

The associated range for bank credit

is 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 over the third quarter of 1980 at annual

rates of about 7 percent, 8 percent, and 8 percent re

spectively, 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.

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 in

structions from the Committee.

It was agreed that the next meeting of the Committee

would be held on Tuesday, August 12,

1980, beginning at 9:30 a.m.

The meeting adjourned.

Secretary