July 19–20, 1976 FOMC Record of Policy Actions

FOMC minutes

7/19-20/76 respectively, would be appropriate. As at other recent meetings, the Committee decided that, in assessing the behavior of the aggregates, approximately equal weight should be given to M1 and M2. It was 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 4-3/4 to 5-3/4 per cent. As customary, it was understood that the Chairman might call upon the Committee to consider the need for supplementary instructions before the next scheduled meeting if significant inconsistencies appeared to be developing among the Committee's various objectives. The following domestic policy directive was issued to the Federal Reserve Bank of New York: The information reviewed at this meeting suggests that growth in real output of goods and services, which had been vigorous in the first quarter, moderated in the second quarter as a consequence of a smaller advance in consumer spending and little change in the rate of inventory accumulation. In June growth in industrial production slowed and nonfarm payroll employment changed little. The unemployment rate edged up to 7.5 per cent from 7.3 per cent in May, but this increase may have partly reflected seasonal adjustment Retail sales rebounded strongly in problems. June. The rise in the wholesale price index for commodities remained moderate, as the advance all in average prices of farm products and foods slowed

7/19-20/76 further. However, average prices of industrial commodities rose more than in other recent months. The advance in the index of average wage rates slowed considerably in June following a sharp rise in May; over the second quarter as a whole the index rose at about the same rate as in the first quarter. The average value of the dollar against leading foreign currencies has remained relatively steady in recent weeks. In May there was a small surplus in the U.S. foreign trade balance. M , which had grown moderately in May, declined slightly in June. From the first to the second quarter, however, M expanded at an 8.4 per cent annual rate because of the exceptional rise in April. Growth in M2, and M3 moderated in June, mainly because of the decline in M1, although inflows of the time and savings deposits included in the broader aggregates also slowed somewhat. Short-term market interest rates have declined somewhat in recent weeks, and most long-term rates have edged down. In light of the foregoing developments, it is the policy of the Federal Open arket Committee to foster financial conditions that will encourage continued economic expansion, 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 achieve bank reserve and money market conditions consistent with moderate growth in monetary aggregates over the period ahead.

7/19-20/76 Votes for this action: Messrs. Burns, Balles, Black, Coldwell, Gardner, Jackson, Kimbrel, Lilly, Partee, Wallich, and Winn. Vote against this action: Mr. Volcker. Mr. Volcker dissented from this action because in the present circumstances he would not wish to raise or lower the Federal funds rate by as much as 1/2 of a percentage point--a change that might be interpreted as a strong signal of a change in policy and that could have repercussions in financial markets--in response merely to short-term fluctua tions in the monetary aggregates that might well prove transient. 2. Memorandum of discussion At this meeting the Committee reviewed its decision of May 18, 1976, to discontinue the memorandum of discussion for the meeting of March 15-16, 1976, after the memorandum for reconsideration received from the in response to requests Chairmen of the Senate and House banking committees. respective Following discussion, the Committee decided to reaffirm the decision in question. Votes for this action: Messrs. Burns, Balles, Black, Gardner, Jackson, Volcker, Kimbrel, Lilly, Partee, Wallich, and Mayo. Vote against this action: Mr. Coldwell. Absent and not voting: Mr. Winn. (Mr. Mayo voted as alternate for Mr. Winn.)

7/19-20/76 -25 had dissented from the action of Mr. Coldwell, who this action to reaffirm the May 18, dissented also from earlier decision.