August 17, 1976 FOMC Record of Policy Actions

FOMC minutes

of easing that was being contemplated was too slight to have a beneficial effect in the short run, and the pace of expansion in activity probably would have picked up long before the easing would have had much effect; and any easing at this time might be misinterpreted--perhaps increasing rather than allaying uncertainties and making business attitudes still more cautious. There was near unanimity in the preferences expressed for ranges of growth in the monetary aggregates over the August-September period. The members favored a 2-month range of 4 to 8 per cent for M1 and either 7-1/2 to 11-1/2 or 7 to 11 per cent for M . At the conclusion of the discussion the Committee decided to seek to maintain prevailing bank reserve and money market conditions over the period immediately ahead, provided that monetary aggregates appeared to be growing at about the rates now expected. Specifically, the Committee concluded that growth in M1 and M2 over the August-September period at annual of 4 to 8 per cent and 7-1/2 to 11-1/2 per rates within ranges respectively, would be appropriate. As at other recent cent, meetings, the Committee decided that, in assessing the behavior of the aggregates, approximately equal weight should be given to M and M2.

It was agreed 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. The members also agreed that, if growth in the aggregates should appear to be deviating significantly from the rates expected, the weekly average Federal funds rate might be expected to vary in an orderly fashion within a range of 5 to 5-1/2 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 is remaining moderate in the current quarter. In July industrial production changed little, but total employ ment expanded by a substantial amount. The civilian force also increased sharply, and the unemployment labor from 7.5 to 7.8 per cent. Retail sales declined rate rose in July, following the rebound in June. The rise in the wholesale price index for all commodities remained moder as average prices of farm products and foods declined. ate, However, average prices of industrial commodities rose other recent months. So far this year the more than in index of average wage rates has been some advance in the what below the rapid rate of increase during 1975.

The average value of the dollar against leading foreign currencies has remained relatively steady in recent weeks, despite some disturbances in exchange markets for European currencies. In June the U.S. foreign trade deficit increased, but the deficit for the second quarter as a whole was somewhat smaller than that for the first quarter. M1, which had declined slightly in June, expanded appreciably in July. Inflows of the time and savings deposits included in the broader aggregates were con siderably stronger than in June, and growth in M2 and M3 was rapid. Market interest rates have declined somewhat further in recent weeks. 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 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 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, Black, Coldwell, Gardner Jackson, Kimbrel, Lilly, Partee, Wallich, Winn, and Guffey. Absent and not voting: Mr. Balles. (Mr. Guffey voted as alternate for Mr. Balles.) 2. Open Market Operations in Federal Agency Issues At this meeting the Committee reviewed its current practices with regard to System operations in Federal agency

issues. In the discussion it was noted that operations in such securities had proved to be useful in achieving the Committee's reserve objectives. At the conclusion of the discussion, the members agreed to continue the System's participation in the markets for the securities of the various agencies.