FOMC Minutes

Meeting of the Federal Open Market Committee

February 2-3, 1981

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 Monday, February 2, 1981, at 10:00 a.m. and continuing

on Tuesday, February 3, 1981, 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, Boehne, Boykin, 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.

Altmann, Secretary

Bernard, Assistant Secretary

Petersen, General Counsel

Oltman, Deputy General Counsel

Mannion 1/, Assistant General Counsel

Axilrod, Economist

Messrs. Balbach, J. Davis, R. Davis 2/, T. Davis,

Eisenmenger, Ettin, Henry, Keir, Kichline,

Truman, and Zeisel, Associate Economists

Mr. Pardee, Manager for Foreign Operations, System

Open Market Account

1/

2/

Attended Tuesday session only.

Attended Monday session only.

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2/2-3/81

Mr. Sternlight, Manager for Domestic Operations, System

Open Market Account

Mr. Allison 3/, Secretary, Office of the Secretary,

Board of Governors

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. Enzler 3/, Senior Deputy Associate Director, Division

of Research and Statistics, Board of Governors

Mr. Lindsey 3/, Assistant Director, Division of Research

and Statistics, Board of Governors

Messrs. Beck and Simpson 3/, Senior Economists, Banking

Section, Division of Research and Statistics,

Board of Governors

Mr. Johnson 3/, Economist, Govenment Finance Section,

Division of Research and Statistics, Board of Governors

Mrs. Steele, Economist, Open Market Secretariat, Board

of Governors

Messrs. Burns, Danforth, Fousek, Keran, Koch, and Scheld,

Senior Vice Presidents, Federal Reserve Banks of

Dallas, Minneapolis, New York, San Francisco,

Atlanta, and Chicago, respectively

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

Vice Presidents, Federal Reserve Banks of Richmond,

Philadelphia, Chicago, and Boston, respectively

Mr. Meek, Monetary Adviser, 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 December 18-19, 1980, were approved.

The following actions took place on Tuesday, February 3, 1981.

By unanimous vote, System open market transactions in foreign

currencies during the period December 19, 1980, through February 2, 1981, were

ratified.

3/

Attended part of Monday session.

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2/2-3/81

By unanimous vote, System open market transactions in Government

securities, agency obligations, and bankers acceptances during the period

December 19, 1980, through February 2, 1981, were ratified.

With Mr. Wallich dissenting, the Committee adopted the following

ranges for rates of growth in the monetary aggregates for the period from the

fourth quarter of 1980 to the fourth quarter of 1981, abstracting from the

impact of introduction of NOW accounts on a nationwide basis:

M-1A, 3 to

5-1/2 percent; M-1B, 3-1/2 to 6 percent; M-2, 6 to 9 percent; and M-3,

6-1/2 to 9-1/2 percent.

The associated range for bank credit was 6 to 9

percent.

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 domestic policy directive:

The information reviewed at this meeting suggests

that real GNP expanded substantially in the fourth quarter

of 1980 and that prices on the average continued to rise

rapidly. In December industrial production and nonfarm

payroll employment expanded further, and the unemploy

ment rate was essentially unchanged at about 7-1/2 per

cent.

Retail sales declined, however, following a

sizable gain over the preceding six months.

Housing

starts were about unchanged for the third month. Over

the last few months of 1980, the rise in the index of

average hourly earnings was at about the rapid pace

recorded earlier in the year.

The weighted average value of the dollar in exchange

markets has risen further over the past six weeks. The

U.S. trade deficit in the final quarter of 1980 widened

from the exceptionally low rate in the third quarter but

remained substantially less than the rate in the first

half.

M-1A and M-1B declined sharply in December; in

January, after adjustment of the actual figures for the

estimated effects of shifts into NOW accounts, these

Growth in M-2 slowed

aggregates recovered in part.

Some

markedly in December but accelerated in January.

2/2-3/81

-4moderation of the expansion in commercial bank credit

in December and early January was accompanied by stepped

up financing of nonfinancial businesses through issuance

of commercial paper and longer-term debt instruments.

Market interest rates have declined on balance from

their highs of mid-December.

The Federal Open Market Committee seeks to foster

monetary and financial conditions that will help to

reduce inflation, encourage economic recovery, and con

tribute to a sustainable pattern of international trans

actions. 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 1980 to the fourth quarter of

1981 within ranges of 3 to 5-1/2 percent, 3-1/2 to 6

percent, 6 to 9 percent, and 6-1/2 to 9-1/2 percent

respectively, abstracting from the impact of introduction

of NOW accounts on a nationwide basis. The associated

range for bank credit was 6 to 9 percent. These ranges

will be reconsidered as conditions warrant.

In the short-run the Committee seeks behavior of

reserve aggregates consistent with growth in M-1A and

M-1B from December to March at annual rates of 5 to 6 per

cent and in M-2 at a rate of about 8 percent, abstracting

from the impact of flows into NOW accounts. These rates

are associated with growth of M-1A, M-1B, and M-2 from

the fourth quarter of 1980 to the first quarter of 1981

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

7 percent respectively. It is recognized that shifts

into NOW accounts will continue to distort measured

growth in M-1A and M-1B to an unpredictable extent, and

operational reserve paths will be developed in the light

of evaluation of those distortions. If it appears

during the period before the next meeting that fluc

tuations 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.

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

on Tuesday, March 31, 1981, beginning at 9:30 a.m.

The meeting adjourned.

Secretary