March 18, 1975 FOMC Record of Policy Actions: Full Text
RESERVE FEDERAL release press release May 5, 1975 For immediate The Board of Governors of the Federal Reserve System and the Federal Open Market Committee today released the attached record of policy actions taken by the Federal Open Market Committee at its meeting on March 18, 1975. Such records are made available approximately 45 days after the date of each meeting of the Committee and are published in the Federal Reserve Bulletin and the Board's Annual Report. The summary descriptions of economic and financial conditions on the information that was available they contain are based to the Committee at the time of the meeting, rather than on data as they may have been revised since then. Attachment
RECORD OF POLICY ACTIONS OF THE FEDERAL OPEN MARKET COMMITTEE Meeting held on March 18, 1975 1. Domestic policy directive The information reviewed at this meeting suggested that real output of goods and services was continuing to fall sharply in the first quarter of 1975, that the rise in prices was moder ating, and that nominal GNP was declining. Staff projections, like those of a month earlier, suggested that real economic activity would recede further in the second quarter and that price increases would continue to moderate; they also suggested that activity would turn up later in the year. In February retail sales had risen slightly, according to the advance estimate. Largely because of continuing efforts inventories, however, cutbacks in pro by business to liquidate duction were again substantial and widespread. Curtailments in employment also were substantial, particularly in manufacturing establishments, and the factory workweek was reduced sharply. Although unemployment rates increased for adult males and heads of households, the over-all rate was unchanged, at 8.2 per cent, as the civilian labor force declined sharply. The advance in the index of average hourly earnings for private nonfarm production workers accelerated somewhat in February, but it remained considerably less rapid than in the
spring and summer of last year. Wholesale prices of industrial commodities again increased moderately--although the rise in prices of both consumer and producer finished goods slowedand wholesale prices of farm and food products declined sharply further. In January, as in December, the increase in the consumer price index had not been so large as in most months in 1974. Staff projections suggested that the decline in real GNP would not be nearly so sharp in the second quarter as in the first, in large part because of the behavior of business inven tories; it was anticipated that inventories, after shifting from heavy accumulation in the fourth quarter of 1974 to substantial liquidation in the current quarter, would decline at only a moderately faster pace in the second quarter. The extent of the inventory liquidation expected in the first half--along with the improved conditions in credit markets and the stimulative in prospect--strengthened the probabilities of fiscal measures an upturn in economic activity in the second half. rates for the dollar against leading foreign Exchange in early February, owing in part currencies--which had rallied purchases of dollars--declined during to official intervention However, the dollar strengthened the remainder of the month. interest rates abroad in early March, as short-term again
continued to decline relative to rates in the United States and as market attitudes toward the dollar were improved some what by, among other things, moderation of the rise in U.S. prices. In January the U.S. foreign trade deficit had been only moderately above the rate in the fourth quarter of 1974, despite a large bulge in recorded imports of oil in advance of the February 1 increase of $1 per barrel in import fees. Net outflows of capital reported by banks continued large as foreigners drew down deposits in U.S. offices. Total loans and investments at U.S. commercial banks grew very little from the end of January to the end of February. Outstanding bank loans to business declined, as business demands for short-term credit remained weak both at banks and in the commercial paper market. Consumer loans at banks also declined, while real estate loans edged up. Bank holdings of U.S. Govern ment securities expanded sharply. The narrowly defined money stock (M1)--which had expanded at an annual rate of about 4.5 per cent in the fourth quarter of 1974 and then had declined at a rate of about 9 per cent in Jan at a rate of about 7 per cent in February. Net inflows uary--grew time and savings deposits to banks and nonbank of consumer-type were particularly large, and broader measures thrift institutions of the money stock (M and M3) increased at substantial rates.
Banks reduced the outstanding volume of large-denomination CD's and Euro-dollar borrowings, reflecting the growth in demand deposits and in time deposits other than CD's as well as the weakness in loan demand. System open market operations since the February 19 meeting had been guided by the Committee's decision to seek bank reserve and money market conditions consistent with more rapid growth in monetary aggregates over the months ahead than had occurred in recent months, while taking account of develop ments in domestic and international financial markets. Accord had been directed toward a gradual further ingly, operations bank reserve and money market conditions. The Federal easing in which had averaged 6-1/4 per cent in the statement funds rate, February 19, had declined to about 5-1/2 per cent week ending in the days preceding this meeting. market interest rates declined a Private short-term period, in response to little further over the inter-meeting in money market conditions and the weakening in the easing for short-term credit, but the declines were private demands came to expect that participants apparently small, as market not ease much further in the money market conditions would somewhat over the period bill rates rose near future. Treasury the Treasury had demands for bills, because despite strong
enlarged the supply in the weekly and monthly auctions. On the day before this meeting the market rate on 3-month Treasury per cent, compared with 5,32 per cent on the bills was 5.39 the last meeting. Effective March 10, Federal day before Reserve discount rates were reduced from 6-3/4 to 6-1/4 per cent at 10 Reserve Banks; shortly thereafter, rates were reduced at the remaining two Banks. Yields on longer-term bonds increased during the inter meeting period, in response to continuation of a large volume of offerings. On February 24 the Treasury announced that over the period to mid-April it would raise about $7 billion in new cash by auctioning coupon issues. Public offerings of corporate bonds remained heavy in February, and a substantial increase was in prospect for March. Actual and prospective offerings of State and local government issues during March and April also were large; in addition, the market for such securities was being adversely affected by the financial problems of a major State corporation. In the home mortgage market, yields declined somewhat further. The Committee decided that the economic situation and outlook called for more rapid growth in monetary aggregates over the months ahead than had occurred in recent months. A staff analysis suggested that the demand for money would be weak in the near term--in association with the expected weakness in
economic activity--and that money market conditions would have to ease slightly further in the period immediately ahead if M1 were to grow at a rate consistent with the Committee's longer run objectives for the monetary aggregates. Some further increase in net inflows of consumer-type time and savings deposits to banks and to nonbank thrift institutions was anticipated, in response to lower short-term interest rates. While private demands for short-term credit were likely to remain weak, the Treasury would be borrowing sizable amounts of new cash over the months ahead. The Committee decided that growth in M1 and M over the period at annual rates within ranges of tolerance March-April of 5 to 7-1/2 per cent and 8 to 10 per cent, respectively, would be consistent with its longer-run objectives for the monetary The members concluded that such growth rates would aggregates. be likely to involve growth in reserves available to support private nonbank deposits (RPD's) within a range of 3-1/2 to 5-1/2 per cent. They agreed that in the period until the next meeting the weekly average Federal funds rate might be expected to vary in an orderly fashion in a range of 4-3/4 to 5-3/4 per cent, if necessary in the course of seeking monetary growth rates within the ranges specified. The members also agreed that in the conduct of operations, account should be taken of developments in domestic and international financial markets.
M would be above the upper limits of of growth in both M1 and that had been specified by the Committee. the ranges of tolerance latest statement week the Federal funds rate had During the In light of the behavior of the averaged about 5-1/2 per cent. would, under normal cir the System Account Manager aggregates, have permitted the weekly average Federal funds rate cumstances, to rise to the upper limit of its range of tolerance--namely, cent. However, members of the Committee--with the 5-3/4 per exception of Mr. Sheehan--concurred in the Chairman's recommen dation of March 27 that, in view of the weakness in the economy and of the sensitive conditions in financial markets, particularly bond markets, the Manager be instructed to treat 5-1/2 per cent as the approximate upper limit for the weekly average funds rate for the time being. Mr. Sheehan did not concur because he believed light of past shortfalls in monetary growth and of sensitive that, in bond market, the Committee should continue its conditions in the easing posture by gradually reducing the funds rate. 2. Authorization for domestic open market operations 10 Committee members had voted to amend a On March provision of paragraph 2 of the authorization for domestic open market operations to raise from $1 billion to $2 billion the of special short-term certificates of limit on System holdings directly from the Treasury. This action indebtedness purchased
In light of the foregoing developments, it is the policy of the Federal Open Market Committee to foster financial conditions conducive to 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 finan cial 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, Baughman, Coldwell, Holland, MacLaury, Mayo, Mitchell, and Wallich, Votes against this action: Messrs. Bucher, Eastburn, and Sheehan, Eastburn, and Sheehan dissented from Messrs. Bucher, that the economic situation this action because they believed and outlook together with recent slow growth in the monetary efforts in the near term called for more aggressive aggregates Committee's longer-run objectives for the aggre to achieve the favored higher upper limits on the gates. In particular, they of tolerance for the monetary aggregates and a 2-month ranges range for the Federal funds rate than lower inter-meeting adopted by the Committee. the meeting, on March 27, the available Subsequent to period the annual rates data suggested that in the March-April
in both M and M would be above the upper limits of of growth the ranges of tolerance that had been specified by the Committee. During the latest statement week the Federal funds rate had 5-1/2 per cent. In light of the behavior of the averaged about would, under normal cir the System Account Manager aggregates, have permitted the weekly average Federal funds rate cumstances, to rise to the upper limit of its range of tolerance--namely, cent. However, members of the Committee--with the 5-3/4 per exception of Mr. Sheehan--concurred in the Chairman's recommen dation of March 27 that, in view of the weakness in the economy and of the sensitive conditions in financial markets, particularly bond markets, the Manager be instructed to treat 5-1/2 per cent as the approximate upper limit for the weekly average funds rate for the time being. Mr. Sheehan did not concur because he believed in light of past shortfalls in monetary growth and of sensitive that, conditions in the bond market, the Committee should continue its easing posture by gradually reducing the funds rate. 2. Authorization for domestic open market operations On March 10 Committee members had voted to amend a provision 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 purchased directly from the Treasury. This action indebtedness
the recommendation of the Account Manager, had been taken on who had advised that he would recommend restoration of the $1 billion limit as soon as it appeared reasonable to do so. In view of the likelihood that the higher limit would be required over coming months, the Committee voted at from time to time today's meeting to maintain the limit at $2 billion for a period unless in the interim the Committee decided otherwise. of one year, Votes for this action: Messrs. Burns, Hayes, Baughman, Bucher, Coldwell, Eastburn, MacLaury, Mayo, Mitchell, Sheehan, and Wallich. Vote against this action: Mr. Holland, Mr. Holland dissented from this action because he pre ferred to tailor the ceiling more closely to changing needs on a month-to-month basis. 3, Review of continuing authorizations This being the first meeting of the Federal Open Market Committee following the election of new members from the Federal Reserve Banks to serve for the year beginning March 1, 1975, and their assumption of duties, the Committee followed its customary practice of reviewing all of its continuing authorizations and directives. The Committee reaffirmed the Authorization for Domestic Open Market Operations, the Authorization for Foreign Currency Operations, and the Foreign Currency Directive in the forms in which they were presently outstanding.
Messrs. these actions: Votes for Bucher, Hayes, Baughman, Burns, MacLaury, Holland, Eastburn, Coldwell, and Wallich. Sheehan, Mayo, Mitchell, None. these actions: Votes against