April 20, 1976 FOMC Record of Policy Actions

FOMC minutes

In view of their assessment that the pace of economic would be relatively strong, most members favored expansion directing operations in the period immediately ahead toward restraining growth of the monetary aggregates within ranges not very much higher than the longer-run ranges agreed upon at this meeting and indicated that they would tolerate some modest firming in money market conditions. It was observed that some firming in money market conditions in this period would reduce the likelihood of excessive monetary growth in subsequent months. During the discussion, the view was expressed that an appreciable tightening in money market conditions in the period immediately ahead would be premature, for a number of reasons. Although the recovery had made satisfactory progress, the rate of unemployment was still well above a desirable level. Resi dential construction was just picking up again, and indications of a recovery in business expenditures for plant and equipment were only now beginning to appear. Business loan demands at banks remained weak. From the third quarter of 1975 to the first quarter of this year, moreover, growth of M -- and to a

growth of M2--had been low relative to the lesser extent, Committee's longer-run ranges. Finally, financial markets were particularly sensitive at this time, and any appreciable tightening in money market conditions could have a substantial effect on short-term interest rates and could adversely affect flows of time and savings deposits at both banks and nonbank thrift institutions. At the conclusion of the discussion the Committee decided to seek bank reserve and money market conditions con sistent with moderate growth in monetary aggregates over the period ahead. Specifically, the members concluded that growth in M1 and M over the April-May period at annual rates within ranges of 4-1/2 to 8-1/2 per cent and 8 to 12 per cent, respec tively, would be acceptable. The Committee decided that, in assessing the behavior of the aggregates, approximately equal weight should be given to M1 and M The members agreed that until the next meeting the weekly average Federal funds rate might be expected to vary in an orderly way within a range of 4-1/2 to 5-1/4 per cent. They also agreed that, in the conduct of operations, account should be taken of developments in domestic and international financial markets.

In accordance with the understanding reached at a held on March 29, 1976,1/ the Committee did special meeting not specify an expected range for growth in reserves available to support private nonbank deposits (RPD's). At the March 29 meeting, the Committee had agreed it should consider the rates of growth in several reserve measures--including nonborrowed reserves, total reserves, and the "monetary base" (total reserves plus currency)--that were likely to be associated with growth in the monetary aggregates at the rates it specified for 2-month periods. It was contemplated that further experimentation and analysis would help the Committee to evaluate the relative useful ness of several possible reserve measures for operational purposes. The following domestic policy directive was issued to the Federal Reserve Bank of New York: The information reviewed at this meeting sug gests that growth in real output of goods and services picked up in the first quarter. In March retail sales rose sharply further and recovery in industrial production continued. Gains in nonfarm employment were again widespread and the unemployment 1/ The March 29 meeting had been called for the purpose of reviewing procedures for formulating and implementing the Com mittee's instructions to the Manager of the System Open Market Account at the Federal Reserve Bank of New York.

rate declined from 7.6 to 7.5 per cent. Over the first quarter wholesale prices of farm products, foods, and fuels declined appreciably, but average wholesale prices of other commodities rose almost as rapidly as during the second half of 1975. Over recent months, the advance in the index of average wage rates has moderated somewhat. The average value of the dollar against lead ing foreign currencies has been relatively steady in recent weeks, while the British pound and the Italian lira have remained under considerable down ward pressure. In February the U.S. foreign trade balance registered a second successive monthly deficit; reported net outflows of private capital remained moderate. Monetary aggregates expanded moderately in March. At commercial banks, inflows of time and savings deposits other than negotiable CD's fell substantially from the exceptional pace of February; inflows to nonbank thrift institutions remained strong. Since mid-March, both short- and long-term market interest rates have declined. 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 contributing to a sustainable pattern of pressures and international transactions. this policy, while taking account of To implement in domestic and international financial developments markets, the Committee seeks to achieve bank reserve money market conditions consistent with moderate and growth in monetary aggregates over the period ahead. Votes for this action: Messrs. Burns, Volcker, Balles, Black, Coldwell, Gardner, Jackson, Kimbrel, Partee, Wallich, Winn. Votes against this action: None. and Absent and not voting: Mr. Holland.