April 14–15, 1975 FOMC Record of Policy Actions

FOMC minutes

4/14-15/75 The Treasury was expected to announce the terms of its mid-May financing on May 1. Of the maturing issues, $3.8 billion were held by the public. At this meeting the Committee reviewed its procedures for specifying desired longer-run growth rates in monetary and credit and concluded that at present it should formulate such aggregates, growth rates for four aggregates--M , M2, M3, and the bank credit proxy--in terms of ranges for annual periods. It was the consensus of the Committee that growth in these aggregates over the period from March 1975 to March 1976 at rates within the following ranges presently appeared to be consistent with its broad economic objec tives: M , 5 to 7-1/2 per cent; M , 8-1/2 to 10-1/2 per cent; M3, cent; and the bank credit proxy, 6-1/2 to 9-1/2 per cent.6/ 10 to 12 per that these ranges, as well as the particular list of It was understood for which such ranges were specified, were subject to aggregates review and modification at subsequent meetings. In considering current policy, the Committee took note of a staff analysis suggesting that the monetary aggregates would grow 6/ Mr. Eastburn preferred to focus on the aggregates that he most closely linked with economic activity--M1, M , and believed were perhaps the bank credit proxy--and he favored employing ranges not more than one percentage point in width. In Mr. MacLaury's view, the outlook for the economy over the coming year--specifically the patterns of performance of employment and prices--called expected of the aggregates over the year, indexed for somewhat faster growth by a 7 per cent growth rate for M1.

4/14-15/75 at relatively rapid rates in the April-May period if prevailing conditions persisted. Relatively rapid growth was money market part because of the temporary effects of large expected in large tax rebates scheduled to begin in May, at a time when the demand for money was also being influenced by the continuing impact of in short-term interest rates and by the rise in earlier declines nominal GNP anticipated for the second quarter. Any further upward interest rates most likely would be confined to pressures on market for Treasury securities. It was expected that business, the market and consumer demands for bank credit would remain rela mortgage, tively weak. background of this analysis and of its longer Against the run objectives for monetary and credit aggregates, the Committee decided to seek growth in M1 and M over the April-May period at annual rates with ranges of tolerance of 6-1/2 to 9 per cent and to 11-3/4 per cent, respectively. The members concluded 9-1/2 that such growth rates would be likely to involve growth in reserves available to support private nonbank deposits (RPD's) within a range of 1-1/2 to 4-1/4 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 the ranges specified. The members also agreed growth rates within

4/14-15/75 that in the conduct of operations, account should be taken of the forthcoming Treasury financing and of developments in domestic and international financial markets. The following domestic policy directive was issued to the Federal Reserve Bank of New York: The information reviewed at this meeting suggests that real output of goods and services fell sharply in the first quarter. However, retail sales strengthened during the quarter, and the rate of decline in over-all activity has slowed in recent weeks. In March industrial production and employment declined less than they had on average in the preceding 4 months, but the unemployment rate increased from 8.2 to 8.7 per cent, as the civilian labor force grew. Average wholesale prices of industrial commodities rose little in March and prices of farm and food products declined sharply. The advance in average wage rates during the first quarter was large, but it was still below the increases of last spring and summer. The prospect of an upturn in economic activity has been strengthened by enactment of the Tax Reduction Act of 1975, which will be adding soon to growth in dispos able personal income. The foreign exchange value of the dollar has risen since early March, as short-term interest rates abroad have declined further and market attitudes toward the dollar have continued to improve. In January-February the U.S. foreign trade balance was in surplus, as agri cultural exports reached a new high and the volume of imports other than fuels declined. Net outflows of funds through banks continued large in February but appear to have diminished in March. In early April reserve requirements on foreign borrowings by member banks were reduced from 8 to 4 per cent. The narrowly defined money stock rose moderately on balance over the first quarter, while broader mea of the money stock expanded more rapidly. Growth sures was substantial in March, apparently in part because of

4/14-15/75 -10- the effects of accelerated tax refunds on deposits at banks and nonbank thrift institutions. Business demands for short-term credit remained weak, both at banks and in the commercial paper market, while demands in the long-term market continued exceptionally strong. Since mid-March short-term market interest rates have increased somewhat and longer-term yields have risen considerably further. 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 the forthcoming Treasury financing and of developments in domestic and international financial markets, the Committee seeks to achieve bank reserve and money market conditions consistent with somewhat more rapid growth in monetary aggregates over the months ahead than has occurred on average in recent months. Votes for this action: Messrs. Burns, Hayes, Baughman, Coldwell, Holland, MacLaury, Mayo, Mitchell, and Wallich. Vote against this action: Mr. Eastburn. Absent and not voting: Messrs. Bucher and Sheehan. Mr. Eastburn dissented from this action because he preferred to retain the previous 5-1/2 per cent upper limit on the inter meeting range for the Federal funds rate. While he believed that firmer money market conditions might prove to be necessary later on in the year, he thought any such firming would be inappropriate at the sensitive state of financial markets, the con this time, given tinued weakness in the economy, and his preference for seeking more rapid growth in the monetary aggregates in the near term than would be desirable over the longer run.