FOMC Minutes

Meeting of the Federal Open Market Committee

December 18-19, 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., starting on Thursday, December 18, 1980, at 3:30 p.m. and continuing

on Friday, December 19, 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 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

Altmann, Secretary

Bernard, Assistant Secretary

Petersen, General Counsel

Oltman, Deputy General Counsel

Mannnion, Assistant General Counsel

Holmes, Adviser for Market Operations

Axilrod, Economist

Messrs. J. Davis, R. Davis, T. Davis, Eisenmenger 1/,

Ettin, Henry, Keir, Kichline, Truman, and Zeisel,

Associate Economists

Mr. Pardee, Manager for Foreign Operations, System

Open Market Account

1/

Attended Friday session only.

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Mr. Sternlight, Manager for Domestic Operations, System

Open Market Account

Mr. Coyne, Assistant to the Board of Governors

Mr. Prell, Associate Director, Division of Research and

Statistics, Board of Governors

Messrs. Gemmill and Siegman 2/, Associate Directors,

Division of International Finance, Board of Governors

Mr. Smith 2/, Assistant 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. Deck, Staff Assistant, Open Market Secretariat,

Board of Governors

Mr. Smoot, First Vice President, Federal Reserve Bank

of Philadelphia

Messrs. Brandt, Burns, Keran, and Scheld, Senior Vice

Presidents, Federal Reserve Banks of Atlanta,

Dallas, San Francisco, and Chicago, respectively

Messrs. Broaddus, Mullineaux, Mrs. Nichols, and Mr. Rolnick,

Vice Presidents, Federal Reserve Banks of Richmond,

Philadelphia, Chicago, and Minneapolis, respectively

Mr. Burger, Assistant Vice President, Federal Reserve

Bank of St. Louis

Ms. Clarkin, Sr. Trading Officer, 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 November 18, November 26, December 5,

and December 12, 1980, were approved.

By unanimous vote, System open market transactions in foreign

currencies during the period November 18 through December 18, 1980 were

ratified.

2/

Attended Thursday session only.

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The following actions took place on December 19, 1980.

By unanimous vote, System open market transactions in Government

securities, agency obligations, and bankers acceptances during the period

November 18 through December 18, 1980, were ratified.

With Mrs. Teeters and Mr. Wallich 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 policy directive:

The information reviewed at this meeting suggests that

real GNP expanded more in the fourth quarter than in the

third, and prices on the average continued to rise rapidly.

In November retail sales, industrial production, and nonfarm

payroll employment expanded substantially further, and the

unemployment rate was essentially unchanged at 7 percent.

Housing starts remained at their September-October level.

The rise in the index of average hourly earnings has been

somewhat more rapid this year than in 1979.

The weighted average value of the dollar in exchange

markets has risen considerably further over the past month.

The U.S. trade deficit was unchanged in October, remaining

well below the rate in the first half.

Growth in M-1A and M-1B continued to moderate in

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

continued to accelerate, reflecting a further pickup in

expansion of its nontransaction component. In early

December, growth of M-1A and M-1B slowed substantially

further. From the fourth quarter of 1979 to November,

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; M-1B and M-2 grew at rates some

what above the upper limits of their respective ranges.

Expansion in commercial bank credit was about as rapid in

November as on the average in the preceding three months.

Short-term market interest rates have risen sharply further

in recent weeks. Long-term market yields have also risen,

although considerably less, and average rates on new home

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mortgage commitments have continued upward. On December 4

the Board of Governors announced an increase in Federal

Reserve discount rates from 12 to 13 percent and an increase

in the surcharge from 2 to 3 percentage points on frequent

borrowing of large institutions.

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 ob

jectives 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 re

duction 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.

In the short-run the Committee seeks behavior of reserve

aggregates associated with growth of M-1A, M-1B, and M-2 over

the first quarter along a path consistent with the ranges for

growth in 1981 contemplated earlier, which will be reviewed

in February 1981. Those ranges, abstracting from the effects

of deposit shifts connected with the introduction of NOW

accounts on a nationwide basis, imply growth in these aggre

gates centered on 4-1/4 percent, 4-3/4 percent, and 7 percent

respectively. It is recognized that the introduction of NOW

and ATS accounts nationwide at the beginning of 1981 is likely

to widen the discrepancy between growth in M-1A and M-1B to

an extent that cannot now be accurately estimated, and oper

ational reserve paths will be developed in the light of eval

uation of those differences as they emerge. In the light

of the rapid growth of monetary and credit aggregates in

recent months, some shortfall in growth would be acceptable

in the near term if that developed in the context of reduced

If it appears during the

pressures in the money market.

period before the next meeting that fluctuations in the

federal funds rate, taken over a period of time, within a

range of 15 to 20 percent are likely to be inconsistent with

the monetary and related reserve paths, 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.

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By unanimous vote, transfer to the National Archives of the FOMC

memoranda of.discussion for 1975, on the basis described in a memorandum

from the Secretariat dated December 3, 1980, was authorized.

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

on Tuesday, February 3, 1981, beginning at 9:30 a.m.

The meeting adjourned.

Secretary