February 19, 1975 FOMC Record of Policy Actions

FOMC minutes

industrial commodities, which were unchanged in December, rose moderately in January, and prices of farm and food products declined further. In recent months increases in average wage rates have moderated, although they have still been large. The decline in the foreign exchange value of the dollar was arrested in early February by con certed central bank intervention and a sharp decline in European interest rates, but in recent days the dollar has declined somewhat. In December the U.S. foreign trade deficit increased, but it was smaller in the fourth quarter as a whole than in the third. The narrowly defined money stock, after having grown at an annual rate of about 4-1/2 per cent over the fourth quarter of 1974, declined sharply in January. However, net inflows of consumer-type time and savings deposits at banks and nonbank thrift institutions were large, and broader measures of the money stock continued to expand. Business demands for short-term credit have weakened in recent months, both at banks and in the commercial paper market, while demands in the long-term market have been exceptionally strong. Since mid-January short-term market interest rates have fallen sub stantially further, and yields on long-term secu rities also have declined. Federal Reserve discount rates were reduced from 7-1/4 to 6-3/4 per cent in early February. In light of the foregoing developments, it is the policy of the Federal Open Market Committee to foster financial conditions conducive to cushioning recessionary tendencies and stimulating economic recovery, while resisting inflationary pressures and working toward equilibrium in the country's balance of payments.

To implement this policy, while taking account of developments in domestic and international financial markets, the Committee seeks to achieve bank reserve and money market conditions consistent with more rapid growth in monetary aggregates over the months ahead than has occurred in recent months. Votes for this action: Messrs. Burns, Hayes, Black, Bucher, Clay, Coldwell, Holland, Kimbrel, Mitchell, Wallich, and Winn. Votes against this action: None. Absent and not voting: Mr. Sheehan. 2. Amendment to foreign currency directive At this meeting the Committee amended paragraph 2(c) of the foreign currency directive to delete the word "Special" from the phrase "Special Manager" wherever the phrase appears in that paragraph. In other actions at the meeting the Committee had approved a realignment of personnel who supervise System open market operations at the Federal Reserve Bank of New York under the Committee's direction.1/ The realignment--which followed acceptance of the resignation of the incumbent Special Manager in connection with his planned retirement from the New York Bankinvolved, among other things, the elimination of the position of Special Manager for Foreign Currency Operations and the assignment of responsibility for the conduct of open market operations in foreign currencies, as well as in domestic securities, to the Manager of the System Open Market Account. The amendment to the foreign currency directive was made to conform to these changes. of Organization and Rules in the Committee's Rules 1/ Revisions of Procedure made for this purpose were published in the Federal Register for March 7, 1975.

Votes for this action: Messrs. Burns, Hayes, Black, Bucher, Clay, Coldwell, Holland, Kimbrel, Mitchell, Sheehan, Wallich, and Winn. Votes against this action: None. 3. Amendment to authorization for domestic open market operations On March 10 the Committee members voted to amend a pro vision of paragraph 2 of the authorization for domestic open market operations to raise from $1 billion to $2 billion the limit on System holdings of special short-term certificates of indebtedness purchased directly from the Treasury. With this amendment, paragraph 2 read as follows: The Federal Open Market Committee authorizes and directs the Federal Reserve Bank of New York, or, under special circumstances, such as when the New York Reserve Bank is closed, any other Federal Reserve Bank, to purchase directly from the Treasury for its own account (with discretion, in cases where it seems desirable, to issue participations to one or more Federal Reserve Banks) such amounts of special short-term certificates of indebtedness as may be necessary from time to time for the temporary accommodation of the Treasury; provided that the rate charged on such certificates shall be a rate 1/4 of 1 per cent below the discount rate of the Federal Bank of New York at the time of such pur Reserve and provided further that the total amount chases, of such certificates held at any one time by the Banks shall not exceed $2 billion. Federal Reserve Votes for this action: Messrs. Burns, Hayes, Baughman, Coldwell, Eastburn, Holland, Mayo, Mitchell, and Sheehan. Votes against this action: None. Absent and not voting: Messrs. Bucher, MacLaury, and Wallich.

This action was taken on the recommendation of the Account Manager, who had advised that current projections of balances had indicated that temporary cash low points Treasury and again in mid-April might require special in mid-March as high as $500 to $700 million. In view of the borrowing day-to-day volatility in the Treasury's account, and in in that account, the Manager had recommended estimates of changes the understanding that he would the increase of the limit, with $1 billion limit as soon as it recommend restoration of the appeared reasonable to do so.