July 15, 1975 FOMC Record of Policy Actions

FOMC minutes

might be appropriate at this time. A number of members indicated that they would prefer to maintain about the prevailing conditions for the time being, in light of the uncertainties about the strength of the economic recovery and of the relatively high levels of market interest rates for the present stage of the cycle. However, these members were prepared to accept some firming in coming weeks if nec essary to slow monetary growth substantially from the rapid pace in recent months. At the conclusion of the discussion, the Committee decided to seek bank reserve and money market conditions over the period immediately ahead about the same as those now pre vailing, provided that growth in monetary aggregates appeared to be slowing substantially from the bulge during the second quarter. Specifically, the members agreed that growth in M1 and M2 over the July-August period at annual rates within ranges of tolerance of 3 to 5-1/2 per cent and 8 to 10-1/2 per cent, respectively, would be acceptable. Such growth rates were thought likely to involve growth in reserves available to support private nonbank deposits (RPD's) within a range of -2 to +1/2 per cent. The members agreed that in the period until the next meeting the weekly average Federal funds rate might be expected to vary in

an orderly fashion within a range of 5-1/2 to 6-3/4 per cent, depending on the behavior of the monetary aggregates. The members also concluded 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 leveled off in the second quarter of the year, as consumer spending continued to strengthen. Activity in residential real estate markets has picked up in recent months. In June industrial production rose slightly, following 8 months of decline. The calculated unemployment rate declined substantially, but this was attributed mainly to prob lems of seasonal adjustment. Average wholesale prices of industrial commodities rose somewhat more in June than in the preceding 3 months, chiefly because of increases in prices of petroleum products, but prices of farm and food products declined appreciably. From the first to the second quarter of the year, the advance in average wage rates continued to moderate. In recent weeks the average exchange value of the dollar against leading foreign currencies has risen considerably, as interest rates on U.S. dollar assets increased relative to rates on foreign cur rency assets after mid-June. In May the U.S. foreign trade balance registered a substantial surplus, as imports dropped more sharply than exports. U.S. a sizable increase in claims on banks reported liabilities to foreigners were foreigners, while reduced slightly.

Growth in M1, M2, and M --which was substantial in May--was extremely rapid in June, in part because of Federal income tax rebates and of supplementary social security payments; beginning late in the month, after completion of such payments, the aggre gates weakened. Business demands for short-term credit remained unusually weak both at banks and in the commercial paper market, while demands in the long-term market continued exceptionally strong. Market interest rates in general have risen appre ciably 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 stimulating economic recovery, while resisting inflationary pres sures 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 develop ments in domestic and international financial markets, the Committee seeks to maintain about the prevailing bank reserve and money market conditions over the period immediately ahead, provided that growth in monetary aggregates appears to be slowing substan tially from the bulge during the second quarter. Votes for this action: Messrs. Burns, Baughman, Bucher, Coldwell, Eastburn, Jackson, MacLaury, Mayo, Wallich, and Debs. Vote against this action: Mr. Holland. Absent and not voting: Messrs. Hayes and Mitchell. (Mr. Debs voted as alternate for Mr. Hayes.) Mr. Holland dissented from this action because he believed that present circumstances did not warrant providing for a pos sible rise in the Federal funds rate to a level as high as 6-3/4 per cent in the period until the next meeting. He preferred

to maintain bank reserve and money market conditions in the inter-meeting period closer to those now prevailing, in the expectation that by the next meeting the unwinding of the recent bulge in monetary aggregates caused by unusual Treasury payments would have proceeded far enough to permit monetary policy decisions to be related more closely to under lying trends in the aggregates.