August 19, 1975 FOMC Record of Policy Actions

FOMC minutes

In July M1 increased relatively little and growth in M2 and M3 slowed substantially, following a sharp increase in depositors' balances in May and June in connection with Federal income tax rebates and supple mentary social security payments. Market interest rates in general have risen appreciably further in recent weeks, in association with indications of strengthening economic activity, more rapid infla tion, and larger current and prospective Treasury financing requirements. Corporate bond offerings moderated somewhat in July but State and local govern ment offerings continued large. Financial markets reflected considerable uncertainty stemming from New York City's financing problems. Business demands for short-term credit remained weak, although less so than in earlier months. 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 contributing to a sustainable pattern of international transactions. 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 moderate growth in monetary aggregates over the months ahead. Votes for this action: Messrs. Burns, Volcker, Baughman, Bucher, Coldwell, Eastburn, Holland, Jackson, MacLaury, Mayo, Mitchell, and Wallich. Votes against this action: None. Subsequent to the meeting, on September 5, the available that in the August-September period M1 would grow data suggested of the range of tolerance that had at a rate in the lower part that M would grow at a rate specified by the Committee and been of its range. In view of the likeli just below the lower limit strengthening in demands for money and credit hood of substantial

over coming months, it appeared that a decline in the Federal funds rate at this time might have to be reversed shortly--a sequence that could seriously compound uncertainties in financial markets. Therefore, Chairman Burns recommended that until the next meeting of the Committee the Manager be instructed to continue to maintain reserve conditions con sistent with a Federal funds rate in the 6-1/8 to 6-1/4 per cent area, while leaning toward the lower figure. Available members of the Committee concurred in the Chairman's recom mendation. 2. Authorization for domestic open market operations On August 6, 1975, Committee members had voted to increase from $2 billion to $3 billion the limit on System holdings of special short-term certificates of indebtedness purchased directly from the Treasury, specified in paragraph 2 of the authorization for domestic open market operations, effective immediately, for the period until the close of business on August 19, 1975. Votes for this action: Messrs. Burns, Bucher, Coldwell, Eastburn, Mitchell, Volcker, Wallich, Balles, and Francis. Votes against this action: None. Absent and not voting: Messrs. Baughman, Holland, Jackson, MacLaury, and Mayo. (Messrs. Balles and Francis voted as alternates for Messrs. MacLaury and Baughman, respectively.)

This action, which was ratified at today's meeting, was taken on the recommendation of the System Account Manager. At the time of the recommendation, Treasury balances at Federal Reserve Banks were in overdraft in the amount of Overdrafts were expected to continue until $651 million. August 18 or 19, and it appeared possible that Treasury cash borrowing from the System substantially in excess of the $2 billion limit would be required. 3. Authorization for foreign currency operations The Committee approved an increase from $180 million to $360 million in the System's swap arrangement with the Bank of Mexico and the corresponding amendment to paragraph 2 of the authorization for foreign currency operations, effective after review and approval by Chairman Burns following resolution of certain technical matters. The Chairman approved the increase on August 29, 1975. With this change, paragraph 2 of the authorization read as follows: The Federal Open Market Committee directs the Federal Reserve Bank of New York to maintain recip rocal currency arrangements ("swap" arrangements) for the System Open Market Account for periods up to a maximum of 12 months with the following foreign banks, which are among those designated by the Board of Governors of the Federal Reserve System under Section 214.5 of Regulation N, Relations with Foreign Banks and Bankers, and with the approval of the Com mittee to renew such arrangements on maturity:

Amount of arrangement (millions of Foreign bank dollars equivalent) Austrian National Bank 250 National Bank of Belgium 1,000 Bank of Canada 2,000 of Denmark 250 National Bank Bank of England 3,000 Bank of France 2,000 German Federal Bank 2,000 Bank of Italy 3,000 Bank of Japan 2,000 Bank of Mexico 360 Netherlands Bank 500 Norway 250 Bank of Bank of Sweden 300 Swiss National Bank 1,400 Bank for International Settlements: Dollars against Swiss francs 600 Dollars against authorized European currencies other than Swiss francs 1,250 Votes for this action: Messrs. Burns, Volcker, Baughman, Bucher, Coldwell, Eastburn, Holland, Jackson, MacLaury, Mayo, Mitchell, and Wallich. Votes against this action: None. This action was taken in order to expand the facilities possible temporary pressures on the available for coping with the peso.