FOMC Minutes

Meeting of the Federal Open Market Committee

August 12,

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, August 12,

1980, at 9:30 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

Messrs. Black, Corrigan, and Ford, Presidents

of the Federal Reserve Banks of Richmond,

Minneapolis, and Atlanta, respectively

Mr.

Mr.

Mr.

Mr.

Altmann, Secretary

Bernard, Assistant Secretary

Petersen, General Counsel

Holmes, Adviser for Market Operations

Messrs. Balbach, J. Davis, R. Davis, Ettin,

Henry, Keir, Kichline, and Zeisel,

Associate Economists

Mr. Pardee, Manager for Foreign Operations,

System Open Market Account

Mr. Sternlight, Manager for Domestic

Operations, System Open Market Account

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8/12/80

Mr. Coyne, Assistant to the Board of

Governors

Mr. Prell, Associate Director, Division

of Research and Statistics, Board

of Governors

Messrs. Gemmill and Siegman, Associate

Directors, 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. Deck, Staff Assistant, Open Market

Secretariat, Board of Governors

Messrs. Czerwinski and Doyle, First Vice

Presidents, Federal Reserve Banks of

Kansas City and Chicago, respectively

Messrs. Boehne, Brandt, Burns, Eisenmenger,

and Scheld, Senior Vice Presidents,

Federal Reserve Banks of Philadelphia,

Atlanta, Dallas, Boston, and Chicago,

respectively

Messrs. Bisignano, Broaddus, Cacy, Danforth,

and Ms. Nichols, Vice Presidents,

Federal Reserve Banks of San Francisco,

Richmond, Kansas City, Minneapolis, and

Chicago, respectively

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

March 7, 1980, May 6, 1980, and July 9, 1980, were approved.

By unanimous vote, System open market transactions

in foreign currencies during the period July 9 through August

11, 1980, were ratified.

8/12/80

- 3 Renewal for further periods of three months of System

drawings on the German Federal Bank and the Bank of France

maturing August 25 through September 18,

1980, was noted with

out objection.

By unanimous vote, System open market transactions

in Government securities, agency obligations, and bankers

acceptances during the period July 9 through August 11, 1980,

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

suggests that the decline in economic activity,

which was marked in the second quarter as a

whole, has been moderating. While industrial

production and nonfarm payroll employment con

tinued to decline sharply in June, total retail

sales advanced after four months of substantial

decreases, and housing starts rose from a de

pressed level.

In July retail sales advanced

further; nonfarm payroll employment declined,

but not so sharply as during the second quarter,

and the unemployment rate edged up from 7.7 to

The overall rise in prices of

7.8 percent.

goods and services moderated in the second

quarter, in large part owing to a lessening

of the rapid rise in energy items.

Over the

first seven months of the year, the rise in

the index of average hourly earnings was some

what faster than the pace recorded in 1979.

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The weighted average value of the dollar

in exchange markets has risen somewhat since

late July, after having fluctuated in a narrow

range earlier in the month.

A reduced U.S.

foreign trade deficit in June brought the

average for the second quarter well below the

average for the first quarter.

Monetary expansion remained rapid in July,

although not so rapid as in June. The recent

resurgence brought growth of M-1A closer to and

that of M-1B about to the lower bounds of the

Committee's ranges for the year from the fourth

quarter of 1979 to the fourth quarter of 1980.

However, the rate of growth for M-2 was near

Market interest

the upper bound of its range.

rates have risen considerably further in recent

weeks.

Taking account of past and prospective

economic developments, the Federal Open Market

Committee seeks to foster monetary and financial

conditions that will help to reduce inflation,

encourage economic recovery, and contribute to

a sustainable pattern of international trans

actions. At its meeting in July, 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 percent, 4 to

6½ percent, 6 to 9 percent, and 6½ to 9½ percent

respectively. The associated range for bank

credit was 6 to 9 percent.

For the period

from the fourth quarter of 1980 to the fourth

quarter of 1981, the Committee looked toward a

reduction in the ranges for growth of M-1A,

M-1B, and M-2 on the order of ½ percentage

point from the ranges adopted for 1980, ab

stracting from institutional influences affect

ing the behavior of the aggregates. These

ranges will be reconsidered as conditions

warrant.

In the short run, the Committee seeks ex

pansion 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 6½

percent, 9 percent, and 12 percent respectively,

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provided that in the period before the next

regular meeting the weekly average federal

funds rate remains within a range of 8 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

instructions from the Committee.

It was agreed that the next meeting of the Committee

would be held on Tuesday, September 16, 1980, beginning at 9:30

a.m.

The meeting adjourned.

Secretary