June 16–17, 1975 FOMC Record of Policy Actions

FOMC minutes

6/16-17/75 -10- of social security benefits in bringing about high rates of monetary growth. Mr. Bucher, in addition, thought that primary emphasis should be given to promoting recovery in economic activity, because he believed that as yet there were no clear indications of the forces that would lead the recovery and because he saw no threat of intensified inflationary pressures so long as rates of resource use remained comparatively low, Subsequent to the meeting, on June 26, the available data suggested that the annual rates of growth in M1 and M in June would be much more rapid than had appeared likely at the time of the meeting and that growth in both aggregates over the June-July period, therefore, would be substantially above the upper limits of the ranges of tolerance established by the Committee. In the statement week ending June 25 the Federal funds rate averaged 5.72 per cent; in the latest 3 days it had been close to 6 per cent. The System Account Manager was planning to aim for a rate cent, the upper limit of the specified range of tolerance. of 6 per Against that background and to give the Manager some flexibility, Chairman Burns recommended on June 26 that the upper limit of the funds rate constraint be raised to 6-1/4 per cent, on the understanding that the additional leeway would be used in the event that another week's data confirmed excessive only

6/16-17/75 strength in the monetary aggregates. Members of the Committeewith the exception of Messrs. Bucher, Holland, and Mitchell--con curred in the Chairman's recommendation. Amendment to authorization for domestic open market operations The Committee amended paragraph 1(c) of the authorization for domestic open market operations to authorize the Federal Reserve Bank of New York to arrange repurchase agreements (RP's) directly with Prior to this action, the Bank had been authorized bank dealers. to arrange RP's with nonbank dealers only. With this amendment, paragraph 1(c) read as follows: Government securities, obligations (c) To buy U.S. that are direct obligations of, or fully guaranteed as to principal and interest by, any agency of the United States, and prime bankers' acceptances of the types authorized for purchase under 1(b) above, from dealers for the account of the Federal Reserve Bank of New York under agreements for repurchase of such securi ties, obligations, or acceptances in 15 calendar days or less, at rates that, unless otherwise expressly authorized by the Committee, shall be determined by competitive bidding, after applying reasonable limita tions on the volume of agreements with individual dealers; provided that in the event Government secu rities or agency issues covered by any such agreement are not repurchased by the dealer pursuant to the agreement or a renewal thereof, they shall be sold in the market or transferred to the System Open Market Account; and provided further that in the event bankers' acceptances covered by any such agreement repurchased by the seller, they shall continue are not by the Federal Reserve Bank or shall be to be held sold in the open market.

6/16-17/75 Votes for this action: Messrs. Burns, Baughman, Bucher, Coldwell, Eastburn, Holland, MacLaury, Mayo, Mitchell, Wallich, and Debs. Votes against this action: None. Absent and not voting: Mr. Hayes. (Mr. Debs voted as alternate for Mr. Hayes.) recommendation of a staff committee, This action was taken on it would usefully broaden the scope of partic which advised that System RP's. The staff committee also reported that ipation in experience with determination of interest rates on RP's by competitive bidding--provided for by action of the Committee in April 1972--had been satisfactory. of guidelines for operations in Federal agency issues 3. Revision of the Manager, the Committee amended On recommendation number 5 of the guidelines for the conduct of System operations in Federal agency issues to increase the limit on System holdings of any one issue at any one time from 20 to 30 per cent of the amount of the issue outstanding, and to increase the limit on System holdings of the issues of any one agency from 10 to 15 per cent of the amount of outstanding issues of that agency. The Manager had advised that Desk operations in agency issues might soon be inhibited by the existing limits; that flexibility for operations in agency issues might prove especially useful;

6/16-17/75 -13- and that experience gained over the past 3-1/2 years of operations in agency issues had shown that the market was capable of absorbing a larger volume of System purchases without undue impact on yields or other market relationships. Votes for this action: Messrs. Burns, Baughman, Bucher, Coldwell, Eastburn, MacLaury, Mayo, Mitchell, Wallich, and Debs. Vote against this action: Mr. Holland. Absent and not voting: Mr. Hayes. (Mr. Debs voted as alternate for Mr. Hayes.) dissented from this action because he was con Mr. Holland cerned that to date the System had bought but rarely had sold agency issues and because the limits on System holdings of agency issues might more appropriately be raised at a stage of the busi ness cycle when the volume of new agency issues being marketed was large.