FOMC Minutes

Meeting of the Federal Open Market Committee

September 16,

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, September 16,

1980, at 9:30 a.m.

PRESENT:

Mr. Volcker, Chairman

Mr. Gramley

Mr. Guffey

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.

Mr.

Mr.

Altmann, Secretary

Bernard, Assistant Secretary

Petersen, General Counsel

Oltman, Deputy General Counsel

Axilrod, Economist

Holmes, Adviser for Market Operations

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

Eisenmenger, Ettin, Henry, Kichline,

and Truman, 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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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

Messrs. Boehne,Brandt, Burns, Fousek,

Keran, Parthemos, and Scheld, Senior

Vice Presidents, Federal Reserve

Banks of Philadelphia, Atlanta,

Dallas, New York, San Francisco,

Richmond, and Chicago, respectively

Ms. Nichols and Mr. Sandberg, Vice

Presidents, Federal Reserve Banks

of Chicago and New York, respectively

Mr. Miller, Assistant Vice President,

Federal Reserve Bank of Minneapolis

By unanimous vote, the minutes of actions taken at

the meeting of the Federal Open Market Committee held on

August 12, 1980, were approved.

By unanimous vote, System open market transactions

in foreign currencies during the period August 12 through

September 15, 1980, were ratified.

Renewal for further periods of three months of System

drawings on the German Federal Bank and the Bank of France

maturing September 30 through October 28, 1980, was noted

without objection,

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By unanimous vote, System open market transactions

in Government securities, agency obligations, and bankers

acceptances during the period August 12 through September 15,

1980, were ratified.

With Messrs. Guffey, Roos, Wallich, and Winn 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 the decline in economic activity has moderated in

the third quarter following a sharp contraction in the

Industrial production and nonfarm pay

second quarter.

roll employment expanded in August after several months

of decline; the unemployment rate edged down from 7.8

to 7.6 percent; and total retail sales advanced con

siderably further. In July housing starts rose slightly,

following a substantial rebound in June, and were well

above the depressed levels of the preceding three months.

Producer prices of finished goods rose rapidly in July

and August, after increasing at a sharply reduced pace

in the second quarter; the recent advance reflected

mainly a surge in food prices. Over the first eight

months of the year, the rise in the index of average

hourly earnings was somewhat faster than the pace

recorded in 1979.

The weighted average value of the dollar in exchange

markets has declined somewhat over the past five weeks.

The U.S. trade deficit in July was significantly lower

than the monthly average in the second quarter, reflec

ting a sharp decline in petroleum imports.

M-1A and M-1B grew at record rates in August, while

growth in M-2 moderated from an exceptionally rapid pace

in June and July. For the year through August growth of

M-1A was in the lower half and growth of M-1B in the

upper half of their respective ranges set by the Committee

for the year from the fourth quarter of 1979 to the fourth

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quarter of 1980, while growth in M-2 was somewhat

above the upper limit of its range. Market interest

rates have fluctuated widely since mid-August and on

balance short-term rates have risen considerably

while long-term rates have increased moderately.

The Federal Open Market Committee seeks to

foster monetary and financial conditions that will

help to reduce inflation, encourage economic re

covery, and contribute to a sustainable pattern of

international transactions. 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 re

spectively. The associated range for bank credit

For the period from the fourth

was 6 to 9 percent.

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,

abstracting from institutional influences affecting

the behavior of the aggregates. These ranges will

be reconsidered as conditions warrant.

In the short run, the Committee seeks expansion

of reserve aggregates consistent with growth of M-1A,

M-1B, and M-2 over the August to December period at

annual rates of about 4 percent, 6½ percent, and 8½

percent respectively, 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 instruc

tions from the Committee.

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By unanimous vote, responsibility for making deter

,minations with respect to appeals of denial of access to

Committee records under the provisions of 271.4(d) of the

Committee's Rules Regarding Availability of Information was

delegated, in the absence of Mr. Schultz, to Mr. Partee.

It was agreed that the next meeting of the Committee

would be held on Tuesday, October 21,

1980, beginning at 9:30 a.m.

The meeting adjourned.

Secretary