January 20, 1976 FOMC Record of Policy Actions

FOMC minutes

In view of the current uncertainties regarding the behavior of the monetary aggregates, many members advocated that the Committee continue to give greater weight than usual money market conditions in conducting open market operations to in the period until the next meeting and that it specify 2 month ranges of tolerance for growth in the monetary aggregates that were wider than usual. Some members preferred to give greater emphasis to variations in the behavior of the monetary expectations, and the suggestion was also aggregates relative to made that more weight be given to the behavior of M relative to that of M1 than had been the case in the past. The Committee decided that operations in the period immediately ahead should be directed toward maintaining the bank reserve and money market conditions now prevailing, pro vided that monetary aggregates appeared to be growing at rates not far from those currently expected. The members concluded that growth in M1 and M over the January-February period at annual rates within ranges of tolerance of 4 to 9 per cent and 3/ 7 to 11-1/2 per cent, respectively, would be acceptable.3/ Mainly because the outstanding volume of large-denomination CD's was projected to decline substantially over the 2-month 3/ The ranges of tolerance were based on the new seasonal adjustment factors published on Jan. 22, 1976.

period, it was expected that these growth rates for the mone tary aggregates would be associated with an annual rate of decline in reserves available to support private nonbank deposits (RPD's) between 2 and 7 per cent. The ranges of tolerance were wider than those customarily specified. 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 4-3/4 per cent, unless rates of growth in the monetary aggregates appeared to be approaching the limits of their specified ranges. The members agreed that, should the aggregates appear to be deviating significantly from expectations, the weekly-average funds rate might be expected to vary in an orderly fashion within a range of 4-1/4 to 5 per cent. The following domestic policy directive was issued to the Federal Reserve Bank of New York: The information reviewed at this meeting sug gests that output of goods and services--which had increased very sharply in the third quarter of 1975- expanded more moderately in the fourth quarter. In December retail sales rose sharply, but the increase in the fourth quarter as a whole was less than that in the third quarter. After having slowed over the preceding 2 months, the rise in industrial production and in nonfarm payroll employment accelerated in December. However, the unemployment rate remained at 8.3 per cent, as the civilian labor force grew

as much as total employment. The increase about in average wholesale prices of industrial com modities was again relatively large, but average prices of farm products and foods declined sharply further. The index of average wage rates was unchanged in December, following 2 months of large increases. The exchange value of the dollar against leading foreign currencies held steady in December but eased somewhat in early January. Another sizable foreign trade surplus was registered in November. M1 declined in December, and growth in M2 and M3 slowed considerably. At commercial banks, inflows of time and savings deposits other than large-denomination CD's slowed, despite a con tinuing build-up of business savings accounts, while inflows of deposits to nonbank thrift institutions were relatively well maintained. In terms of quarterly averages, growth in M1 from the third to the fourth quarter was modest, while growth in M2 and M3 was more substantial. In recent weeks interest rates on both short and long-term securities have declined appreciably. In mid-January Federal Reserve discount rates were reduced from 6 to 5-1/2 per cent. 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 infla tionary pressures and contributing to a sustainable pattern of international transactions. To implement this policy, while taking account of developments in domestic and international finan cial markets, the Committee seeks to maintain pre vailing 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, Partee, and Wallich. Votes against this action: None.