October 19, 1976 FOMC Record of Policy Actions

FOMC minutes

second to the third quarter were close to, or above, the upper limits of the ranges adopted in July. If the relatively slow third-quarter growth in M1 was viewed as an argument against reducing its range, by analogous reasoning the relatively rapid growth in the broader aggregates could be viewed as militating against an increase in their ranges. At the conclusion of its discussion the Committee arrived at a consensus calling for a reduction of 1/2 of a percentage point in the upper limit of the range for M and increases of the same amount in the upper limits of the ranges for M2 and ranges thus were set at 4-1/2 to 6-1/2 per cent M . The new for M1, 7-1/2 to 10 per cent for M , and 9 to 11-1/2 per cent for M3. The associated range for the rate of growth in the bank credit proxy was unchanged at 5 to 8 per cent. It was agreed that the longer-term ranges, as well as the particular for which such ranges were specified, would be aggregates to review and modification at subsequent meetings. subject It also was understood that short-run factors might cause growth rates from month to month to fall outside the ranges contemplated for the year ahead.

The Committee adopted the following ranges for rates of growth in monetary period from the third aggregates for the quarter of 1976 to the third quarter of 1977: M1, 4-1/2 to 6-1/2 per cent; M2, 7-1/2 to 10 per cent; and M , 9 to 11-1/2 per cent, Votes for this action: Messrs. Burns, Black, Coldwell, Gardner, Jackson, Kimbrel, Lilly, Partee, Wallich, Winn, Guffey, and Timlen. Votes against this action: None. Absent and not voting: Messrs. Balles and Volcker. (Messrs. Guffey and Timlen voted as their respec tive alternates.) with respect to drawings on Swiss 3. Special authorization National Bank on September 21, the Committee had voted At its meeting to approve the following special authorization: The Federal Open Market Committee authorizes Reserve Bank of New York to and directs the Federal for repayment of the System's outstanding arrange commitments to the Swiss National Bank (concurrent swap by the U.S. Treasury of Treasury notes with repayment denominated in Swiss francs and held by the Swiss National Bank), within a 3-year period by means quarterly payments on a schedule that is mutually of satisfactory to the Swiss National Bank, the U.S. Treasury, and the Federal Reserve. This authoriza tion shall become effective upon final approval of technical details by the Chairman of the Federal Open Market Committee. Votes for this action: Messrs. Burns, Volcker, Balles, Black, Coldwell, Gardner, Jackson, Kimbrel, Lilly, Wallich, and Winn. Votes against this action: None. Absent and not voting: Mr. Partee.

The technical details of the arrangements were approved by Chairman Burns on October 26, 1976, and the authorization became effective on that date. At the time of the September 21 meeting the Federal Reserve had outstanding commitments of $1,147 million equivalent on its swap line with the Swiss National Bank. These commitments represented the balance remaining on drawings made in May and August 1971--the latter just before the U.S. Government suspended the convertibility of the dollar into gold and other reserve assets. In addition, the Swiss National Bank held U.S. Treasury notes denominated in Swiss francs in the amount of $1,599 million equivalent. On August 15, 1971, when the suspension of convertibility was announced, the Federal Reserve had outstanding commitments in Swiss francs of $1,600 million equivalent, including $600 million drawn on the Bank for International Settlements that was later consolidated with the commitments to the Swiss National Bank. The Federal Reserve had made some progress in repaying these commitments during 1972, 1973, 1974, and early 1976, using francs acquired both through market purchases and in direct transactions with the Swiss

National Bank. It was recognized, however, that substantial market purchases for the purpose of making larger repayments would have augmented the already strong upward pressures on the franc. Accordingly, discussions were undertaken with a view to securing a negotiated settlement that would avoid 1/ disturbing the exchange markets. The Manager reported at the September 21 meeting that a tentative arrangement had been worked out among the Federal Reserve, the U.S. Treasury, and the Swiss National Bank establishing an orderly procedure for the repayment within 3 years of both the System's and the Treasury's indebtedness to that Bank. After discussion, the Committee had approved the proposed arrangements, subject to the provision that the Committee's authorization would become effective upon final approval of technical details by the Chairman. 1/ During this period discussions also were under way with the Swiss (as well as the Belgian) monetary authorities with respect to various aspects of outstanding System drawings, including adjustments to reflect changes in currency valuations. In December 1975 the dollar equivalent of the commitments to the Swiss National by the System in 1971 had been adjusted upward by Bank incurred $196 million to take account of the two U.S. dollar devaluations of 1971 and 1973.