April 15–16, 1974 FOMC Record of Policy Actions

FOMC minutes

4/15-16/74 rates in the event that growth be accepted in the growth should expected at present. Conse ahead proved to be lower than period of tolerance for the 2 they decided that the ranges quently, to allow for such lower rates period should be wide enough month the April-May period the Committee of growth. Specifically, for of 3 to 7 per cent and 5-1/2 to 8-1/2 adopted ranges of tolerance annual rates of growth in M1 and M2, respectively. per cent for the growth within those ranges would The members agreed that rates of involve RPD growth during the same period at an be likely to a 6 to 11 per cent range of tolerance, and annual rate within they decided that in the period until the next meeting the weekly average Federal funds rate might be permitted to vary in an orderly fashion from as low as 9-3/4 per cent to as high as 10-3/4 per cent, if necessary, in the course of operations. The members also agreed that, in the conduct of operations, account should be taken of the forthcoming Treasury financing and of international and domestic financial market developments. It that the Chairman might call upon the Committee was understood to consider the need for supplementary instructions before the next scheduled meeting if significant inconsistencies appeared the Committee's various objectives and to be developing among constraints.

4/15-16/74 directive was issued to The following domestic policy the Federal Reserve Bank of New York: The information reviewed at this meeting suggests real output of goods and services declined appre that quarter and that price increases ciably in the first large. The decline in economic were exceptionally reflected mainly the impact of the oil short activity is being eased by the ending of the oil age, which In March industrial production and manufac embargo. receded further, but retail sales turing employment The unemployment rate changed little, strengthened. 5 per cent. Prices of farm remaining slightly above and food products declined in March, but increases among industrial commodities were widespread and extraordinarily large. Advances in wage rates were moderate in the first quarter. In March the dollar depreciated further against leading foreign currencies, and the balance of payments was in deficit on the official settlements basis. The surplus diminished again in February as the U.S. trade cost of imported oil rose sharply. The narrowly defined money stock increased sharply again in March. Broader measures of the money stock rose more moderately, however, as net inflows of consumer-type time deposits at banks slowed substan tially. Business short-term credit demands remained strong, with demands at banks exceptionally large. To help finance loan growth, banks in late March and early April stepped up the issuance of large-denomina tion CD's and also increased borrowings from abroad. Both short- and long-term market interest rates have risen considerably further in recent weeks. In light of the foregoing developments, it is the policy of the Federal Open Market Committee to foster financial conditions conducive to resisting inflationary pressures, supporting a resumption of real economic growth, and maintaining equilibrium in the country's balance of payments.

4/15-16/74 To implement this policy, while taking account Treasury financing and of inter of the forthcoming national and domestic financial market developments, to achieve bank reserve and money the Committee seeks conditions that would moderate growth in mone market tary aggregates over the months ahead. Votes for this action: Messrs. Burns, Hayes, Black, Brimmer, Bucher, Clay, Holland, Kimbrel, Mitchell, Sheehan, Wallich, and Winn. Votes against this action: None. it appeared that in the April Subsequent to the meeting of growth in the monetary aggregates May period the annual rates would be above the upper limits of the ranges that had been specified by the Committee. Largely because of unexpectedly strong money market pressures, the Federal funds rate was around 11 per cent on April 22 and 23, and in the statement week ending April 24 it seemed likely to average slightly above the upper limit of 10-3/4 per cent set by the Committee. The System Account Manager reported that in order to bring the funds rate back within the range of tolerance he would have to expand reserve-supplying operations, thus stimulating further growth of the monetary aggregates. On April 24, in view of those circumstances and against the background of the increase in Federal Reserve dis count rates announced that day, Chairman Burns recommended that the upper limit of the funds rate constraint be raised by one quarter of a percentage point to 11 per cent. The members of the Committee--with the exception of Mr. Bucher--concurred in the Chairman's recommendation.

4/15-16/74 In mid-May available data suggested that in the April May period the annual rates of growth in M1 and M2 would be within of tolerance specified by the Committee the short-run ranges while the rate of growth in RPD's would be well above its spec The Federal funds rate remained above the 11 per ified range. the Committee's range of tolerance despite cent upper limit of a lower rate; in the statement week System efforts to achieve 11.46 per cent. Major member banks ending May 15, it averaged avoid borrowing at the discount window, apparently preferred to bidding in the Federal funds market instead. In addition, a market shortage of collateral for repurchase agreements technical efforts to provide reserves. In any event, it would hampered have been difficult to bring the funds rate back down to 11 per cent without providing nonborrowed reserves through open market operations on a scale that would have risked market misinterpre tation of the System's policy intent. On May 17 Chairman Burns recommended that the Committee take note of the difficulties faced by the System Account Manager in recent days and, in view of the likelihood that those conditions would persist over the next few days, that it change the ceiling guideline for the funds rate 11-1/4 per cent. The members--with the exception of from 11 to Mr. Holland--concurred in the Chairman's recommendation.