FOMC Minutes

Meeting of the Federal Open Market Committee

October 21, 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.,

PRESENT:

on Tuesday, October 21, 1980, at 9:30 a.m.

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, Mayo, and Timlen, 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.

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, R. Davis, T. Davis,

Eisenmenger, Ettin, Henry, Keir, Truman, 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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Mr. Coyne, Assistant to the Board of Governors

Mr. Prell, Associate Director, Division of Research

and Statistics, Board of Governors

Mr. Smith 1/, Assistant Director, Division of Inter

national Finance, Board of Governors

Mr. Beck, Senior Economist, Banking Section, Division

of Research and Statistics, Board of Governors

Mr. Morton 1/, Economist, Financial Markets Section,

Division of International Finance, Board of

Governors

Mrs. Steele, 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. Brandt, Burns, Danforth, Parthemos, and

Scheld, Senior Vice Presidents, Federal Reserve

Banks of Atlanta, Dallas, Minneapolis, Richmond,

and Chicago, respectively

Messrs. Bisignano, Mullineaux and Sloan, Vice

Presidents, Federal Reserve Banks of San

Francisco, Philadelphia, and Chicago, respec

tively

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 September 16, 1980, were

approved.

By unanimous vote, System open market transactions in foreign

currencies during the period September 16 through October 20, 1980,

were ratified.

1/

Left the meeting prior to the action to amend paragraph 1(a) of the

Authorization for Domestic Open Market Operations.

10/21/80

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By unanimous vote, System open market transactions in Govern

ment securities, agency obligations, and bankers acceptances during

the

period September 16 through October 20, 1980, were ratified.

By unanimous vote, paragraph 1(a) of the Authorization for

Domestic Open Market Operations was amended to raise to $4 billion

the

dollar limit on intermeeting changes in System Account holdings of U.

S.

Government and Federal agency securities, effective immediately, for

the

period through the close of business on November 18, 1980.

With Messrs. Morris, Roos, Wallich,and Winn dissenting, the

Federal Reserve Bank of New York was authorized and directed, until other

wise 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 GNP increased somewhat in the third quarter

following the sharp contraction in the second quarter,

while prices on the average continued to rise rapidly.

The recovery in retail sales and housing starts that

began in June continued during the third quarter.

Industrial production and nonfarm payroll employment

expanded in September for the second consecutive month,

and the unemployment rate edged down from 7.6 to 7.5

percent.

The rise in the index of average hourly

earnings moderated in the third quarter, but the rise

over the first nine months of the year was about as

rapid as in 1979.

The weighted average value of the dollar in ex

change markets on balance has risen somewhat over the

past month. The U.S. trade deficit in August remained

well below the monthly average in the second quarter.

M-1A and M-1B continued to grow rapidly in September,

although not so rapidly as in August, while growth in

M-2 moderated further. From the fourth quarter of 1979

to September, growth of M-1A was slightly above the

midpoint of the range set by the Committee for growth

over the year ending in the fourth quarter of 1980,

while growth of M-1B and M-2 was somewhat above the

upper limits of their ranges. Expansion in commercial

bank credit was relatively rapid in both August and

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10/21/80

September. On balance short-term market interest

rates have risen considerably further since mid

September while long-term rates have changed little;

average rates on new home mortgage commitments have

continued upward. An increase in Federal Reserve

discount rates from 10 to 11 percent was announced

on September 25.

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 3 to 6 percent, 4 to 6 per

cent, 6 to 9 percent, and 6 to 9 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

percentage point from the ranges

adopted for 1980, abstracting from institutional in

fluences affecting the behavior of the aggregates.

These ranges will be reconsidered as conditions warrant.

In the short run, the Committee seeks behavior

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

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

at annual rates of about 2 percent, 5 percent, and

7 1/4

percent respectively, or somewhat less, provided

that in the period before the next regular meeting

the weekly average federal funds rate remains within

a range of 9 to 15 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.

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

held on Tuesday, November 18, 1980, beginning at 9;30 a.m.

The meeting adjourned.

Secretary