September 16, 1975 FOMC Record of Policy Actions

FOMC minutes

was issued to domestic policy directive The following Reserve Bank of New York: the Federal The information reviewed at this meeting suggests that output of goods and services--which had turned up in the second quarter--is increasing appreciably further in the current quarter. In August industrial production and nonfarm payroll employment expanded at a faster pace than in July, and the average workweek in manu facturing continued to lengthen. The unemployment rate remained at 8.4 per cent, as the civilian labor force increased about as much as total employment. Retail sales apparently declined slightly, following 4 months of large gains. The index of wholesale prices of industrial commodities rose somewhat more in August than in July, chiefly because of increases in prices of energy products; prices of farm and food products declined slightly. The advance in average wage rates over recent months has been somewhat less rapid than in 1974 and early 1975. In recent weeks the exchange value of the dollar against leading foreign currencies has risen somewhat further. In July the U.S. foreign trade surplus declined from the very high second-quarter level, as imports rose sharply. Bank-reported capital movements showed a net inflow, in contrast to the net outflows of earlier months, while U.S. liabilities to foreign official agencies, which earlier had been rising, declined. somewhat in August from Expansion in M picked up Growth in M and M3 slowed further, the low July rate. however, as inflows of consumer-type time and savings and to nonbank thrift institutions deposits to banks moderate, reflecting in part the increased continued to of alternative investments. Interest attractiveness on short-term securities and on longer-term rates securities have shown little Treasury and corporate weeks, except that longer-term net change in recent yields adjusted upward following the Treasury's of its sizable borrowing September 10 announcement this year. Yields on over the rest of requirements government securities rose to new State and local

as a result of widespread highs in early September, of New York about possible repercussions concern September 9 a State crisis; on City's financial the City was enacted. program to assist it is foregoing developments, In light of the Market Committee to of the Federal Open the policy conducive to stimulating foster financial conditions resisting inflationary pres economic recovery, while pattern of to a sustainable sures and contributing international transactions. implement this policy, while taking account To of developments in domestic and international financial markets, the Committee seeks to achieve bank reserve market conditions consistent with moderate and money 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. on October 2, the available Subsequent to the meeting, that in the September-October period both M and data suggested M would grow at rates well below the lower limits of the ranges of tolerance that had been specified by the Committee. The Federal funds rate had averaged 6.36 per cent during the statement week ending October 1 and most recently had been about 6-1/4 per cent. In view of the weakness of the aggregates and of the unsettled market for municipal securities, Chairman Burns recommended that the Manager be instructed to aim at a Federal funds rate of 6-1/8 per cent immediately and to aim to reduce the rate to 6 per cent over the next few days. The

Chairman also recommended that the lower limit of the funds rate constraint be reduced to 5-3/4 per cent, in order to provide leeway for further operations in the event that cur rent weakness of the aggregates was confirmed by incoming data in the following week. All available members of the Committeewith the exception of Mr. Bucher--concurred in the Chairman's recommendations. Mr. Bucher, while concurring in the first recommendation, preferred not to reduce the lower limit of the constraint before data on the aggregates became available in the following week. 2. Authorization for domestic open market operations On October 3, 1975, Committee members voted to increase from $3 billion to $4 billion the limit on changes between Committee meetings in System Account holdings of U.S. Government and Federal agency securities specified in paragraph 1(a) of the authorization for domestic open market operations, effective immediately, for the period ending with the close of business on October 21, 1975. Votes for this action: Messrs. Burns, Volcker, Baughman, Bucher, Coldwell, Eastburn, Jackson, MacLaury, Mayo, Mitchell, and Wallich. Votes against this action: None. Absent and not voting: Mr. Holland.

This action was taken on recommendation of the System Account Manager, who had advised that large-scale purchases of Treasury and Federal agency securities since the September meeting of the Committee--required mainly to counter the effect of a rise in Treasury balances at the Reserve Banks--had reduced the leeway available for further purchases to about $300 million. While projections for coming weeks suggested that the System would be in a position to absorb rather than to provide reserves, the Manager believed that in view of the fragile state of confidence in financial markets, especially the municipal market, it would be desirable for the Desk to have additional flexibility to deal with unfolding developments.