April 19, 1977 FOMC Record of Policy Actions

FOMC minutes

advances for many industrial commodities. The index of average wage rates rose in the first quarter of 1977 at a somewhat faster pace than it had on the average during 1976, reflecting largely an increase in the minimum wage. The average value of the dollar against leading foreign currencies has declined somewhat over the past month, returning to about the level at the beginning of the year. Demand for the Japanese yen and the U.K. pound intensified. The U.S. foreign trade deficit continued large in February. M-1 grew at a moderate pace in March but increased substantially in early April. At banks and thrift institutions, inflows of time and savings deposits other than large-denomination CD's continued to slacken in March. Market interest rates declined considerably in mid-April, after having changed little since mid-March. In light of the foregoing developments, it is the policy of the Federal Open Market Committee to foster bank reserve and other financial conditions that will encourage continued economic expansion, while resisting inflationary pressures and contributing to a sustainable pattern of international transactions. Growth in M-1, M-2, and M-3 within ranges of 4-1/2 to 6-1/2 per cent, 7 to 9-1/2 per cent, and 8-1/2 to 11 per cent, respectively, from the first quarter of 1977 to the first quarter of 1978 appears to be consistent with these objectives. These ranges are subject to reconsideration at any time as conditions warrant.

Committee seeks to encourage near-term The of growth in M-1 and M-2 on a path believed rates to be reasonably consistent with the longer-run ranges for monetary aggregates cited in the preceding paragraph. Specifically, at present, it expects the annual growth rates over the April-May period the ranges of 6 to 10 per cent for M-1 to be within and 8 to 12 per cent for M-2. In the judgment of the such growth rates are likely to be associated Committee with a weekly average Federal funds rate of about 4-3/4 per cent. If, giving approximately equal M-1 and M-2, it appears that growth rates weight to over the 2-month period will deviate significantly from the midpoints of the indicated ranges, the operational objective for the Federal funds rate shall be modified in an orderly fashion within a range of 4-1/2 to 5-1/4 per cent. If it appears during the period before the next meeting that the operating constraints specified above are proving to be significantly inconsistent, the Manager is promptly to notify the Chairman who will then decide whether the situation calls for supplementary instructions from the Committee. Votes for this action: Messrs. Burns, Volcker, Coldwell, Gardner, Guffey, Jackson, Lilly, Mayo, Morris, Partee, Roos, and Wallich. Votes against this action: None. Subsequent to the meeting, on May 5, nearly final estimates indicated that in April M-1 had grown at a record annual rate of 19.4 per cent and that M-2 had grown at the substantial rate of 13.0 per cent. For the April-May period staff projections suggested

growth in M-1 would be well above the that the annual rate of of the 6 to 10 per cent range specified by the upper limit in the next-to-last paragraph of the domestic policy Committee at the April meeting. Growth in M-2 for the directive issued was projected to be close to the midpoint of 2-month period the Committee's range of 8 to 12 per cent for that aggregate. The Federal funds rate had averaged 5.15 per cent in the statement week ended May 4, about 40 basis points above the average for the preceding 3 weeks. The Manager of the Market Account was currently aiming at a funds rate System Open of 5-1/4 per cent, the upper limit of the inter-meeting range specified in the directive. Against that background, Chairman Burns recommended on May 5 that the upper limit of the range for the Federal funds rate be increased to 5-1/2 per cent, on the understanding that the Manager would use the additional leeway only if new data becoming available before the meeting scheduled for May 17 suggested that the aggregates were strengthening significantly further on balance.

On May 6, 1977, the Committee modified the inter-meeting range for the Federal funds rate specified in the next-to-last paragraph of the domestic policy directive issued on April 19, 1977, by increasing the upper limit from 5-1/4 to 5-1/2 per cent. Votes for this action: Messrs. Burns, Volcker, Coldwell, Gardner, Guffey, Jackson, Lilly, Morris, Partee, Roos, Wallich, and Winn. Votes against this action: None. Absent and not voting: Mr. Mayo. (Mr. Winn voted as alternate for Mr. Mayo.)