FOMC Minutes

Meeting of the Federal Open Market Committee

November 18, 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, November 18, 1980, at 9:30 a.m.

PRESENT:

Mr. Volcker, Chairman

Mr. Solomon, Vice Chairman

Mr. Gramley

Mr. Guffey

Mr. Morris

Mr. Partee

Mr. Rice

Mr. Roos

Mr. Schultz

Mrs. Teeters

Mr. Wallich

Mr. Winn

Messrs. Balles, Baughman, and Eastburn, 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

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,

Kichline, 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

11/18/80

- 2 -

Mr. Coyne, Assistant to the Board of Governors

Messrs. Prell and Siegman, Associate Directors, Divisions

of Research and Statistics, and International Finance,

respectively, 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. Boykin, Doyle, and McIntosh, First Vice Presidents,

Federal Reserve Banks of Dallas, Chicago, and Boston,

respectively

Messrs. Boehne, Brandt, Danforth, Keran, Parthemos, and

Scheld, Senior Vice Presidents, Federal Reserve Banks

of Philadelphia, Atlanta, Minneapolis, San Francisco,

Richmond, and Chicago, respectively

Mr. Kubarych and Mrs. Nichols, Vice Presidents, Federal

Reserve Banks of New York, and Chicago, respectively

Mr. Ozog, Manager, Securities Department, Federal Reserve

Bank of New Ycr'

By unanimous vote, the minutes of actions taken at the meeting of the

Federal Open Market Committee held on October 21, 1980, were approved.

By unanimous vote, System open market transactions in foreign

currencies during the period October 21 through November 17, 1980 were

ratified.

By unanimous vote, the Committee approved the renewal for further

periods of up to one year of the following swap arrangements having the

indicated amounts and maturity dates, subject to final approval by the

Foreign Currency Subcommittee of changes in terms to eliminate risk-sharing

provisions on System drawings and to provide for payment of interest on

System drawings based on appropriate foreign interest rates rather than

on the U. S. Treasury bill rate:

- 3 -

11/18/80

Amount of

arrangement

(millions of

$ equivalent)

Foreign bank

Austrian National

Bank

National Bank of Belgium

Bank of Canada

National Bank of Denmark

Bank of England

Bank of France

German Federal Bank

Bank of Italy

Bank of Japan

Bank of Mexico

Netherlands Bank

Bank of Norway

Bank of Sweden 1/

Swiss National Bank

Bank for International

Settlements

Swiss francs

Other authorized

European currencies

1/

$

250.0

1,000.0

2,000.0

250.0

3,000.0

2,000.0

6,000.0

3,000.0

5,000.0

700.0

500.0

250.0

500.0

4,000.0

Term

(months)

Maturity

date

12 mos.

12/4/80

"12/19/80

"

12/29/80

"12/29/80

"

12/4/80

12/29/80

"

12/29/80

"

12/29/80

"

12/4/80

"12/4/80

"12/29/80

"12/4/80

"12/4/80

"

12/4/80

600.0

"12/4/80

1,250.0

"12/4/80

The action was taken with the understanding that the amount of the

arrangement with the Bank of Sweden will automatically revert to $300

million on May 23, 1981, in accordance with the Committee's action on

May 21, 1980, to raise the amount to $500 million, effective on May 23,

1980, for a period of one year.

On December 1, and 17, 1980,

Secretary's note:

the Foreign Currency Subcommittee approved pro

visions to effect the indicated changes in terms

of the swap agreements, with a proviso that in

terest rates be based on instruments as closely

comparable as possible to U. S. Treasury bills.

By unanimous vote, System open market transactions in Government

securities, agency obligations, and bankers acceptances during the period

October 21 through November 17, 1980, were ratified.

With Mrs. Teeters and Mr. 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:

11/18/80

- 4 The information reviewed at this meeting suggests that

real GNP is recovering further in the fourth quarter from

the sharp contraction in the second quarter, while prices

on the average continue to rise rapidly. In October in

dustrial production and nonfarm payroll employment expanded

substantially for the third consecutive month, and the un

employment rate remained around 7 percent. The value of

retail sales changed little, following four months of re

covery. The rise in the index of average hourly earnings

over the first ten months of 1980 was somewhat more rapid

than in 1979.

The weighted average value of the dollar in exchange

markets on balance has risen further over the past month.

The U.S. trade deficit was essentially unchanged in

September, and the rate in the third quarter was sharply

lower than that in the first half.

Growth in M-1A and M-1B moderated further in October

but was still relatively rapid; growth in M-2 accelerated

slightly, reflecting a pickup in expansion of its non

transactions component. From the fourth quarter of 1979

to October, growth of M-1A was in the upper part 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 rapid in October,

although not so rapid as in August and September. Market

interest rates have risen sharply in recent weeks; average

rates on new home mortgage commitments have continued upward.

On November 14 the Board of Governors announced an increase

in Federal Reserve discount rates from 11 to 12 percent and

a surcharge of 2 percentage points on frequent borrowing of

large member banks from Federal Reserve banks.

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 transactions. At

its meeting in July, the Committee agreed that these objec

tives 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 percent,

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 influences affecting

the behavior of the aggregates. These ranges will be

reconsidered as conditions warrant.

11/18/80

- 5 -

In the short run, the Committee seeks behavior of

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

and M-2 over the period from September to December at

annual rates of about 2 percent, 5 percent, and 7-3/4

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

13 to 17 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 supple

mentary instructions from the Committee.

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

on Friday, December 19, 1980, beginning at 9:30 a..m.

The meeting adjourned.

Secretary