December 16, 1975 FOMC Record of Policy Actions

FOMC minutes

period at annual rates within ranges of tolerance of 4 to 7 per / cent and 7 to 10 per cent, respectively, would be acceptable.1 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 4 to 7 per cent. It was contemplated that System operations until the next meeting would be directed toward maintaining the weekly average Federal funds rate at about its current level of 5-1/4 per cent, unless rates of growth in the monetary aggregates appeared to be deviating significantly from the midpoints of their specified ranges. The members agreed that, in the event the aggregates appeared to be deviating from expectations, the weekly average funds rate might be expected to vary in an orderly fashion within a range of 4-1/2 to 5-1/2 per cent. 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 increased very sharply in the third quarter--is expanding more moderately in the current quarter. In November the 1/ The ranges of tolerance over the December-January period were based on preliminary new seasonal factors. The growth rates specified for M and M2 for the 2-month period were, respectively, about 2-1/4 percentage points and 1 percentage point higher than those that would have been specified had the old factors been used. It was expected that revised money supply series incorporating new seasonal factors as well as benchmark and certain other statistical adjustments would be published in late January.

rise in industrial production and in nonfarm payroll employment slowed further. The dollar volume of sales rose again, however, and residential retail construction activity expanded, reflecting recent substantial increases in private housing starts. The unemployment rate--which had risen 0.3 percent age points to 8.6 per cent in October--fell back to 8.3 per cent in November, reflecting a sizable decline in the civilian labor force. The increase in average wholesale prices of industrial com modities, although below that in October, was still relatively large; prices of farm products declined appreciably, following 2 months of large increases. The advance in average wage rates in November was again substantial. The exchange value of the dollar against leading foreign currencies has risen somewhat since mid-November. The net outflow of bank reported private capital appears to have declined from the high rate reported for October. In October the U.S. foreign trade surplus remained substantial. M -- which had declined in October--rose sharply in November. Growth in M2 and M was substantial, as inflows of consumer-type time and savings deposits to banks strengthened while inflows to nonbank thrift institutions remained relatively favorable. Long-term interest rates have fluctuated in a narrow range in recent weeks, while short-term market rates have risen somewhat. In light of the foregoing developments, it is the policy of the Federal Open Market Committee to foster financial conditions that will encourage con tinued 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 maintain prevailing

bank reserve and money market conditions over the period immediately ahead, provided that monetary aggregates appear to be growing at about the rates currently expected. 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. Subsequent to the meeting, on January 12, the available data suggested that in the December-January period both M1 and of the ranges of the lower limits grow at rates below M would tolerance that had been specified by the Committee. In recent days the Manager had been aiming at a Federal funds rate of 4-7/8 per cent, and the rate had been in an area of 4-3/4 to 4-7/8 per cent. The significance of the apparent weakness in the aggregates was highly uncertain, because of the effects of the recent intro duction of business savings accounts at commercial banks and because the revised seasonal adjustment factors employed were still under review. The problems of seasonal adjustment were particularly acute for the months of December and January. For these technical reasons, and in view of more favorable recent economic statistics--including the latest data on employment and retail sales--Chairman Burns recommended that the Manager

be instructed to hold the weekly average Federal funds rate at the approximate level of 4-3/4 per cent until the Committee's next meeting. All members of the Committee, with the exceptions of Messrs. Eastburn and MacLaury, concurred in the Chairman's recommendation.