October 21, 1975 FOMC Record of Policy Actions

FOMC minutes

would be subject to review which such ranges were specified, at subsequent meetings. It also was under and modification factors, growth rates stood that, as a result of short-run well fall outside the ranges con from month to month might templated for annual periods. current policy, the Committee took note In discussing of a staff analysis in which it was suggested that, in view of the projected expansion in GNP, growth in M1 was likely to resume in coming weeks. Because of its reduced level in early October, however, M was expected to show relatively slow growth over the October-November period. Time deposit experience at banks and nonbank thrift institutions was expected to improve somewhat in the short run, in response to the declines in market interest rates that had occurred in recent weeks. During the discussion of current policy at this meeting, some Committee members expressed doubt concerning the strength of recovery in economic activity over the quarters immediately ahead, in part because of the possible repercussions of New York's financial problems and because of the relatively high levels of market interest rates prevailing at this early stage of the recovery. It was noted, moreover, that inflation remained a serious problem. Against that background, and in view of the recent weak performance of the monetary aggregates, some members

to ease bank reserve and money market advocated operations the objective of promoting prompt resumption conditions--with in the monetary aggregates. There was some of moderate growth sentiment for maintaining prevailing money market conditions, because of the likelihood of substantial strengthening in part money and credit over coming months which might in demands for lead to a reversal of the easing in money market conditions. members advocated operations to tighten bank reserve None of the and money market conditions in the period immediately ahead. the discussion the Committee decided At the conclusion of reserve and money market conditions consistent with to seek bank moderate growth in the monetary aggregates over the months ahead, while taking account of developments in domestic and international Specifically, the members agreed that growth financial markets. in M1 and M over the October-November period at annual rates within ranges of tolerance of 3 to 7 per cent and 5-1/2 to 8-1/2 per cent, respectively, would be acceptable. It was thought that such growth rates would be likely to involve an annual rate of growth in reserves available to support private nonbank deposits (RPD's) within a range of 0 to 4 per cent. agreed that until the next meeting the weekly The members average for the Federal funds rate might be expected to vary in

an orderly fashion within a range of 5-1/4 to 6-1/4 per cent. It was understood, however, that unless new data suggested that growth in the monetary aggregates in the October-November period would exceed the rates now expected, operations would be directed toward moving the Federal funds rate down to 5-1/2 per cent by the end of the statement week following this meeting. The following domestic policy directive was issued to the Federal Reserve Bank of New York: The information reviewed at this meeting suggests that output of goods and services--which had turned up in the second quarter--increased sharply further in the third quarter. In recent months retail sales have been maintained at the higher levels reached in early summer, and industrial production has strengthened progressively. Nonfarm payroll employ ment continued to expand in September, and the un employment rate edged down from 8.4 to 8.3 per cent. In September, as in August, average wholesale prices of industrial commodities rose somewhat faster than earlier in the year, in part because of increases in prices of energy products; prices of farm and food products rose sharply in September. The advance in average wage rates in recent months has remained somewhat less rapid than in 1974 and early After rising further in late September, the exchange value of the dollar against leading foreign currencies has declined to about its mid-September level. In August the U.S. foreign trade surplus increased as agricultural exports rose. Bank-reported private capital movements showed a further net inflow, while U.S. liabilities to foreign official agencies declined again.

but in September the average on rose slightly M1 declined in the latter part of the month and in early October. From the second to the third quarter, how ever, M1 grew at a 6.9 per cent annual rate. Inflows of consumer-type time and savings deposits to banks and to nonbank thrift institutions continued to moderate in September, reflecting in part the attrac tiveness of alternative investments, and growth in M and M3 slowed further. Although conditions in markets for State and local government securities continued to be adversely affected by New York's financial problems, most short- and long-term interest rates have declined in recent weeks. On October 15 the Board of Governors announced a reduction of member bank reserve requirements on long-term time deposits. In light of the foregoing developments, it is the policy of the Federal Open Market Committee to foster financial conditions that will encourage continued economic recovery, while resisting inflationary pres sures 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, Coldwell, Eastburn, Holland, Jackson, MacLaury, Mayo, Mitchell, and Wallich. Votes against this action: None. Absent and not voting: Mr. Bucher.