November 16, 1976 FOMC Record of Policy Actions

FOMC minutes

one extreme to 4-3/4 to 5 per cent at the other, and a number suggested retention of the range of 4-1/2 to 5-1/4 per cent specified at the previous meeting. Some of those members advocating the narrower ranges favored placing greater emphasis on money market conditions in the domestic policy directive to be issued to the Federal Reserve Bank of New York than had been the case in the directive issued at the meeting a month earlier. Others, however, preferred to retain language similar to that adopted in October, which placed more emphasis on the behavior of the aggregates in guiding operations. At the conclusion of the discussion the Committee decided to seek bank reserve and money market conditions consistent with moderate growth in monetary aggregates over the period ahead. Specifically, the Committee concluded that growth in M-1 and M-2 over the October-November[corrected by hand to November-December] period at annual rates within ranges of 3 to 7 per cent and 9-1/2 to 13-1/2 per cent, respectively, would be appropriate. It was understood that, in assessing the behavior of the aggregates, the Manager should continue to give approximately equal weight to the behavior of M-1 and of M-2.

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 4-1/2 to 5-1/4 per cent. It was also agreed that the Manager should aim to reduce the Federal funds rate to about 4-7/8 per cent within the next week and to about 4-3/4 per cent within the following weekprovided that growth in the monetary aggregates did not appear to be strong relative to the specified ranges--and to decide on subsequent objectives on the basis of incoming data for the monetary aggregates. 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 services in the fourth quarter may be falling and somewhat below the third-quarter rate. In October retail sales increased little following a decrease in September. Industrial production and employment in manufacturing declined, in part because of strikes. After adjustment for strikes, total payroll employment

in nonfarm establishments rose somewhat further. According to household survey data, the unemployment rate edged up from 7.8 to 7.9 per cent. The whole sale price index for all commodities rose less rapidly in October than in September as average prices of farm products and foods declined; however, average prices of industrial commodities rose sharply further. The advance in the index of average wage rates over recent months has remained somewhat below the rapid rate of increase during 1975. The average value of the dollar against leading foreign currencies has remained steady in recent weeks, declining slightly against the German mark and associated European currencies but rising against the pound sterling and the lira. In September the U.S. foreign trade deficit widened again, and the third-quarter deficit was about double the average of the first two quarters of M-1, which was about unchanged in September, expanded sharply in October. Growth in M-2 and M-3 accelerated as inflows of the time and savings deposits included in these broader aggregates continued exceptionally strong. Interest rates have fluctuated in a narrow range 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 achieve bank reserve and money market conditions consistent with moderate growth in monetary aggregates over the period ahead.

action: Messrs. for this Votes Gardner, Black, Coldwell, Burns, Volcker, Partee, Wallich, Lilly, Kimbrel, Jackson, against this Votes and Guffey. Winn, not voting: and None, Absent action: as alternate voted (Mr. Guffey Mr. Balles. for Mr. Balles.)