July 19, 1977 FOMC Record of Policy Actions: Full Text
FEDERAL RESERVE press release For Use at 4:00 p.m. August 19, 1977 The Board of Governors of the Federal Reserve System and the Federal Open Market Committee today released the attached record of policy actions taken by the Federal Open Market Committee at its meeting on July 19, 1977. Such records for each meeting of the Committee are made available a few days after the next regularly scheduled meeting and are published in the Federal Reserve Bulletin Annual Report. The summary descriptions of and the Board's economic and financial conditions they contain are based on the information that was available to the Committee solely at the time of the meeting. Attachment
RECORD OF POLICY ACTIONS OF THE FEDERAL OPEN MARKET COMMITTEE Meeting held on July 19, 1977 Domestic policy directive The information reviewed at this meeting suggested in real output of goods and services in the that growth second quarter had been close to the pace in the first indicated by estimates of the Commerce Department quarter, an annual rate of 6.9 per cent. The rise in to have been at average prices--as measured by the fixed-weighted price index for gross domestic business product--appeared to have been the annual rate of 6.5 per cent estimated somewhat faster than for the first quarter, owing in large part to substantial increases in prices of foods. Staff projections suggested that the rate of growth in real GNP would be less rapid in the second half of 1977 than in the first and that it would slow somewhat further into 1978. The projections also suggested that the rate of increase in prices would moderate from that in the first half but would remain high. In the second quarter, according to the latest staff estimates for the expenditure components of real GNP, growth in personal consumption expenditures had slowed appreciably
in the first quarter. Moreover, from the high rate fixed investment had been substantially expansion in business in the first quarter, reflecting recovery below the rapid pace On the other hand, residential construction from strikes. very sharply, in part because of recovery activity had expanded winter weather in the first quarter; from the effects of severe State and local government purchases of goods and services had turned up; and the rate of business inventory accumulation had increased considerably further. for the second half of the year were Staff projections the same as those made a month earlier. They suggested virtually growth in consumption expenditures would slow somewhat that the pace of expansion in residential construction further and that would moderate. At the same time, however, it was expected that increases in Federal purchases of goods and services would be substantial; that growth in State and local government purchases would be sustained at a high rate; that expansion of business investment would remain relatively strong; and that the rate of inventory accumulation would rise further, although by much less than in the first half.
In June industrial production rose 0.7 per cent, following gains of 0.7 and 1.0 per cent in April and May, respectively. Much of the June advance was accounted for by increases in output of automotive products--following 2 months of declines--and in production of business equipment and durable goods materials. Output of nondurable consumer goods and of nondurable goods materials changed little. Over the period from March to June, when the over-all index rose 2-1/2 per cent, output of business equipment expanded about 5 per cent and production of consumer goods about 1-1/4 per cent. The rate of capacity utilization for the materials producing industries remained near 83 per cent in June, compared with about 81-1/2 per cent in March. For durable goods materials and nondurable goods materials, respectively, the rates were about 80-1/2 and 87-1/2 per cent in June, compared with 78 and 87 per cent in March. Expansion in employment moderated in June. Payroll in nonfarm establishments rose by 135,000 persons, employment less than half the average monthly increase in the preceding
5 months. Employment in manufacturing--after vigorous expansion earlier in the year--declined slightly in June, reflecting reductions in a number of nondurable goods industries. The unemployment rate rose from 6.9 to 7.1 per cent, reflecting an increase in the number of persons seeking part-time jobs--mainly teenagers and adult women. The civilian labor force continued to grow at a rapid pace. Since December 1976, when the unemployment rate was 7.8 per cent, the civilian labor force had risen by about 1-3/4 million persons. Teenagers and adult women accounted for about three-fourths of that increase. Personal income expanded considerably less in April and May than in the preceding 2 months when increases had been especially large owing to the rebound in wage and salary payments from the weather-reduced level in January and to large increases in transfer payments. Wage and salary payments rose about 1 per cent in both April and May, close to the average monthly increase for the first quarter. For June the employment statistics suggested a smaller increase in wage and salary payments. Retail sales in June remained at about the level reached in March; however, the total for the second quarter was about 2 per cent above the first-quarter level. In June sales declined at general merchandise stores for the second consecutive month
and fell sharply at apparel stores, but they rose appreciably at furniture and appliance stores and continued to expand at food stores. Sales of new automobiles--at an advanced annual rate of 11.8 million units--were close to the level of April and May and about 5 per cent above the average for the first quarter. The book value of inventories in manufacturing and trade rose sharply in May, and the rate of increase over the first 2 months of the second quarter was moderately higher than that for the first quarter. In manufacturing, the rate of increase over the April-May period was almost twice as fast as in the first quarter, and for nondurable goods industries alone it was more than three times as fast. The number of private housing units started in June had not been made public by the time of this meeting. In April were at an annual rate of about 1.9 million unitsand May starts about 10 per cent above the average for both the first quarter of 1977 and the fourth quarter of 1976. Sales of new homes May for the third consecutive month and were 16 per declined in cent below the advanced rate for the first quarter. However,
sales of existing homes rose in May to a near-record rate that was 7 per cent above the first-quarter average. New orders for nondefense capital goods were unchanged in May, after having expanded about 6 per cent on balance over the preceding 4 months. Shipments of such goods continued to change little in May, and unfilled orders rose further to a level nearly 4 per cent higher than at the end of 1976. Contract awards for commercial and industrial buildings--as measured in terms of floor space--fluctuated widely during the first 5 months of 1977, but the April-May average was about 3-1/2 per cent higher than the average for the first quarter. As had been reported before the June meeting of the Committee, the latest Commerce Department survey of business plans suggested that in the third and fourth quarters of 1977 increases in spending for plant and equipment would be smallperhaps no more than the rise in prices for such goods. According to the survey, businesses would spend 12.3 per cent more for plant and equipment in 1977 than they had in 1976. The index of average hourly earnings for private nonfarm production workers rose at an annual rate of 3.7 per cent in June.
advance over the first 6 months of 1977 was 6.7 per The rate of with an increase of 6.9 per cent during 1976. cent, compared half of 1977, however, relatively greater growth Over the first of employment in higher-wage industries and an increase in : had resulted in a faster rate of advance in hours of overtime actual average hourly earnings than in the index, which is adjusted to exclude the effects of fluctuations in overtime in manufacturing and also the effects of changes in the proportion of workers in high-wage and low-wage industries. The wholesale price index declined in June, after having risen much less in May than in the preceding 3 months. Average prices for farm products fell sharply further in June, and those for processed foods also declined. As in May, average prices of industrial commodities rose appreciably less than in earlier months of 1977. The consumer price index rose 0.6 per cent in May--a little less than in April and the same as in March. Retail prices of foods increased 0.7 per cent in May--about half as much as in April--while commodities other than foods and services rose 0.4 per cent and 0.7 per cent, respectively.
The average value of the dollar against leading foreign currencies declined by more than 1 per cent over the inter-meeting period, following more than a year of relative stability. Over the 4-week period, moreover, foreign central banks intervened in the exchange markets to purchase, on balance, a substantial amount of dollars. The downward pressure on the dollar intensified at the end of June when public statements by some government officials fostered market expectations that the currencies of countries with large surpluses in their current accounts would appreciate. Declines in the dollar, which occurred against almost all major currencies, were especially marked against the Japanese yen, the German mark, and the Swiss franc. The U.S. foreign trade deficit diminished somewhat in May from the high average during the preceding 4 months. In May imports of petroleum declined, and exports of agricultural commodities increased sharply, reflecting chiefly a rise in exports of soybeans. Exports of nonagricultural commodities were virtually unchanged; since the third quarter of 1976 they had been stable, on balance, in association with only moderate expansion in economic activity in major industrial countries marked by sluggishness in capital investment.
At U.S. commercial banks, growth in total credit slowed somewhat further in June and was slightly below the average for the first 5 months of the year. The slowing in June reflected declines in net acquisitions of Treasury and other securities. Growth of real estate loans accelerated to a near-record pace, and growth of most other major categories of loans was substantial. However, nonbank financial institutions reduced their outstanding bank loans, as they raised a record volume of funds in the commercial paper market. Business credit demands--which had fallen off in Mayrebounded in June, apparently in part because of borrowing by corporations to finance a record amount of Federal income tax payments due at midmonth. Business loans at banks and the outstanding volume of commercial paper issued by nonfinancial corporations both expanded at relatively high rates. Over the first half of the year, growth in business loans (excluding bankers acceptances) and in outstanding commercial paper was faster than over the fourth quarter of 1976. substantially defined money stock (M-1), after having The narrowly rapid rate in April and having increased risen at an exceptionally
little in May, grew at a moderate pace in June. On a quarterly average basis, M-1 grew at an annual rate of 8.5 per cent in the second quarter, compared with 4.2 per cent in the first quarter. Growth in the more broadly defined measures of money (M-2 and M-3) also was moderate in June. Inflows to banks of the time and savings deposits included in M-2 picked up somewhat, after having slackened for a number of months, and inflows to nonbank thrift institutions remained sizable. On a quarterly-average basis, M-2 and M-3, respectively, grew at annual rates of 9.2 and 10.0 per cent in the second quarter, compared with 9.9 and 11.3 per cent in the first quarter. At its June meeting the Committee had decided that operations in the period immediately ahead should be directed toward maintaining about the prevailing money market conditions, as represented by a weekly-average Federal funds rate of 5-3/8 per cent, provided that M-1 and M-2 appeared to be growing over the June-July period at annual rates within ranges of 2-1/2 to 6-1/2 per cent and 6 to 10 per cent, respectively. Throughout the inter-meeting period, incoming data suggested that over the June July period M-1 and M-2 would grow at rates within those ranges.
Manager of the System Open Market Account Accordingly, the funds rate around 5-3/8 per cent. sought to maintain the Federal with the stability in the Federal funds In association rate, market interest rates in general changed little during the inter-meeting period despite some increase in over-all credit, demands. Rates on Treasury bills edged up--although the Treasury continued to redeem bills in its regular auctions--as the market apparently began to adjust to the anticipated near-term cessation of large redemptions. Changes in rates on private short-term instruments and on longer-term issues were small. Treasury public sales and redemptions of securities were about in balance during the inter-meeting interval. For the second quarter as a whole, the Treasury made net repayments of marketable securities of $5 billion, in contrast with net borrowings of $14 billion during the first quarter. It was anticipated that the Treasury would raise a substantial amount in conjunction with its mid-August refunding of of new money $3.3 billion of maturing securities held by the public; it was expected that the terms of the financing would be announced on July 27.
corporate bond market the volume of new securities In the to the public increased in June, reflecting a relatively offered volume of new issues by public utilities and financial large second quarter as a whole, however, offerings concerns. For the were below the volume for the previous quarter, and those by industrial corporations were at the lowest level in more than 3 years. State and local government bonds rose to Offerings of a record in June, raising the second-quarter volume to an billion, following $10.7 billion in the first unprecedented $13.4 quarter. As in other recent months, demands for these securities strong from property-casualty insurance companies, commercial were directly and through municipal bond banks, and individuals--both investment companies. of mortgage lending remained large in June The volume banks as well as at savings and loan associations. at commercial the second quarter indicated an acceleration from Estimates for the high rate for the first quarter. While issues of GNMA-guaranteed, mortgage-backed securities declined from the strong first-quarter of mortgages by FNMA expanded substantially. pace, net acquisitions rates on new commitments for conventional home Average interest
to edge higher in late June and early mortgages continued in the secondary mortgage market changed July, and yields little on balance. their discussion of the economic situation, members In of the Committee agreed with the general outlines of the staff described as presenting a fairly projections, which were picture of prospective developments. Despite the optimistic broad consensus on the outlook, several members suggested that expansion in some sectors of demand might prove to be less strong than expected by the staff and that growth in real GNP was more likely to fall short of than to exceed the projected rates. With respect to the immediate situation, attention was called to the rate at which inventories had accumulated in some sectors. The view was expressed that a minor adjustment of inventories--similar to although smaller than the one in the latter part of 1976--had been under way for the past 2 months or so and had already affected production and employment in nondurable goods industries. It was observed that businesses appeared to adjust inventory imbalances more promptly now than
they had in the past; that such minor adjustments tended to forestall the development of a need for major adjustment; and that the adjustment that appeared to be in process was healthy in that it would serve to make the business expansion more sustainable. A question was raised as to whether the staff projections for the very near term adequately reflected the adjustment in inventories that appeared to be under way. Questions were also raised about the staff projections for sales of new automobiles and for residential construction. It was suggested that auto sales might be reduced from the advanced level of recent months by two influences: one, increases in prices, not only for domestic models but also for imports because of the substantial appreciations of the Japanese yen and the German mark against the dollar; and two, the high level of consumer debt. With respect to residential construction, two members felt that the expansion in that sector might slow sooner than projected; in support of this view, it was suggested that the rise in prices for new homes had diminished the ability of consumers to buy them.
Despite the questions about certain aspects of the a number of reasons were advanced for staff projections, the prospective course of economic activity with some viewing confidence: The trend of retail sales was basically upwardsales had leveled off on a high plateau in recent even though months--and the minor inventory imbalance was being corrected; any falling off in sales of automobiles that might develop was likely to be accompanied--as often in the past--by more rapid growth in sales of consumer nondurable goods; the expansion in business capital expenditures was gaining momentum; and purchases of goods and services by State and local governments would be strength in over-all activity. It was a source of increasing suggested, moreover, that a gradual slowing of growth in real GNP toward its long-term trend was desirable as rates of resource utilization approached their practical limits. Although the outlook for plant and equipment expenditures was viewed as favorable, concern was expressed that the lag in growth of productive facilities so far in this business expansion might result in the development of pressures against available capacity while the unemployment rate was still relatively high.
At the same time, it was noted that economists in general believed that the unemployment rate consistent with the goal of full employment was appreciably higher now than it had been some years earlier. The observation was made that the unemployment rate had remained comparatively high despite the extraordinary growth in employment so far in this business expansion mainly because women--and to a lesser extent, teenagers--had entered the labor force in unusually large numbers. It was suggested that many women sought part-time jobs--in some cases because of the effects of inflation--and that even though businesses had been adapting to this change in the labor market, the increase in the number of part-time jobs available had been far from sufficient. Some members commented on pending legislation to increase the minimum wage. The view was expressed that an increase in the minimum tended to raise the whole structure of wages and that it had adverse effects on employment, particularly of teenagers, and on prices. Finally, some members of the Committee expressed concern about the possible effects of developments abroad on the U.S.
economy. Specifically, they observed that in some major outlook for economic activity did not appear to countries the strong and that continued sluggishness abroad be particularly had adverse implications for the U.S. trade balance, already heavily in deficit. At this meeting the Committee reviewed its 12-month ranges for growth in the monetary aggregates. At its April meeting the Committee had specified the following ranges for growth over the period from the first quarter of 1977 to the first quarter of 1978: M-1, 4-1/2 to 6-1/2 per cent; M-2, 7 to 9-1/2 per cent; and M-3, 8-1/2 to 11 per cent. The associated range for growth in the bank credit proxy was 7 to 10 per cent. The ranges being considered at this meeting were from the second quarter of 1977 to the second for the period quarter of 1978. In the discussion of the ranges for growth in the aggregates over the year ahead, most members of the Committee expressed the belief that a small downward adjustment should be made. All but one of these members supported a proposal to reduce the lower limit of the range for M-1 by 1/2 of a
percentage point while retaining the existing ranges for M-2 and M-3; one member favored small reductions in the ranges for M-2 and M-3 as well as the 1/2-point decrease in the lower limit of the range for M-1. Other Committee members advocated more of a downward adjustment in the ranges; specifically, they favored a reduction of 1/2 of a percentage point in both the upper and the lower limits of the range for M-1, and these members in general favored some decrease in the ranges for M-2 and M-3 as well. In support of the proposal to make some downward adjustment, several Committee members suggested that it would be desirable to take another step in the gradual process of bringing the longer-run ranges for growth in the monetary with general price stability. aggregates down to rates compatible Moreover, it was observed that the annual rate of growth in M-1 from the first to the second quarter of 1977 had exceeded the range adopted by the Committee at its meeting in April; that despite the gradual reduction of projected ranges of growth the aggregates during the past 2 years, no meaningful for in actual rates of growth; that reduction had as yet occurred
the outlook for growth in real GNP was relatively good; and that the rate of inflation had intensified somewhat during the first half of 1977. One member of the Committee favored a reduction of 1/2 of a percentage point in the upper, as well as the lower, limit of the range for M-1 while retaining the existing ranges for M-2 and M-3, with the objective of realigning the ranges in view of the increasing importance of new means of payment as substitutes for demand deposits. Other members argued, on the other hand, that any downward adjustment in the range for M-1 should be limited to the lower limit. It was noted that while second-quarter growth for that aggregate had been relatively high, growth in the first quarter had been low in relation to the Committee's longer-run range. In view of prospective developments--including, specifically, increases in prices attributable to such exogenous forces as increases in energy wage--it was suggested that a reduction costs and in the minimum point in the upper as well as in the of 1/2 of a percentage limit of the range for M-1 might run the risk of undesirable lower in financial markets, a principal effect of which would pressures be to slow growth in real GNP more than projected.
Three members of the Committee advocated a reduction a percentage point in both limits of the range for of 1/2 of M-1 and also some reduction in the ranges for the broader monetary aggregates. Their reasons for this position are contained in the statements of dissent below. At the conclusion of its discussion the Committee decided to reduce the lower limit of the range for M-1 by 1/2 of a percentage point and to retain the existing ranges for M-2 and M-3. The ranges thus were 4 to 6-1/2 per cent for M-1, 7 to 9-1/2 per cent for M-2, and 8-1/2 to 11 per cent for M-3. The associated range for the rate of growth in 1/ commercial bank credit was 7 to 10 per cent. It was agreed that the longer-run ranges, as well as the particular aggregates for which such ranges were specified, would be subject to review and modification at subsequent meetings. It was also understood that short-run factors might cause growth rates from month to month to fall outside the ranges contemplated for the year ahead. 1/ At this meeting the Committee decided to replace the bank credit proxy with a broader measure of all commercial bank credit. In recent years the proxy--which is based solely on data for member banks--has become increasingly less representative of total bank credit, in part because of the growth in importance of nonmember banks and in part because the proxy does not include certain borrowings by banks from the nonbank public.
The Committee adopted the following ranges for rates of growth in monetary aggregates for the period from the second quarter of 1977 to the second quarter of 1978: M-1, 4 to 6-1/2 per cent; M-2, 7 to 9-1/2 per cent; and M-3, 8-1/2 to 11 per cent. Votes for this action: Messrs. Burns, Volcker, Gardner, Guffey, Lilly, Mayo, Morris, Partee, and Wallich. Votes against this action: Messrs. Coldwell, Jackson, and Roos. Mr. Coldwell dissented from this action because he thought that liquidity was high; that less rapid growth in real GNP was now necessary in order to sustain the expansion later on; and that action to reduce the rate of growth in the aggregates might lessen upward pressures on prices, improve the U.S. foreign trade position, and strengthen the dollar. Mr. Jackson dissented because he believed that it was important to reduce the upper limit of the range for M-1 so that the Committee would take action to avoid a higher rate of growth, and that it was a logical consequence of that position to favor reductions also in the ranges for the broader aggregates. Mr. Roos, who also dissented, held the view that the retention of the existing upper limit of the range for M-1 following
the overshoot of growth in that aggregate from the first to the second quarter of 1977 might result in too rapid monetary growth over the five-quarter period ending in the second quarter of 1978 and therefore lead to a probable acceleration of the rate of inflation. As to policy for the period immediately ahead, members of the Committee did not differ greatly in their preferences for ranges of growth for the monetary aggregates over the July-August period. Most of them favored ranges of 3-1/2 to 7-1/2 per cent and 6-1/2 to 10-1/2 per cent for the annual rates of growth in M-1 and M-2, respectively. One member suggested that the Committee specify somewhat wider ranges around the same midpoints of those ranges because of greater than-usual uncertainty about projections of monetary growth for the period just ahead. Also, some sentiment was expressed for slightly higher, and some for slightly lower, ranges. All members favored a return to basing decisions for open market operations in the period immediately ahead primarily on the behavior of the monetary aggregates. At its meeting in June the Committee had decided to give greater weight than usual
to money market conditions in conducting operations in the period until this meeting. Almost all members favored directing operations initially toward the objective of maintaining the Federal funds rate at its current level of 5-3/8 per cent, but a few members suggested that operations be directed toward achieving a slightly higher rate within a short time. With respect to the degree of leeway for operations during the inter-meeting period should the deviating significantly from the mid aggregates appear to be points of the specified ranges, most members advocated retaining the range for the Federal funds rate of 5-1/4 to 5-3/4 per cent that had been specified at the two preceding meetings. A few members suggested that it would be appropriate to specify a wider range for the funds rate in association with the return operations on the basis of the behavior of the to conducting monetary aggregates; ranges of 5-1/4 to 6 per cent, 5 to 6 per cent, and 5 to 5-3/4 per cent were suggested. At the conclusion of the discussion the Committee decided that growth in M-1 and M-2 over the July-August period at annual rates within ranges of 3-1/2 to 7-1/2 per cent and
6-1/2 to 10-1/2 per cent, respectively, would be appropriate. understood that in assessing the behavior of the aggregates, It was give approximately equal weight to the behavior the Manager should of M-1 and M-2. of the Committee, such growth rates of In the judgment aggregates were likely to be associated with a weekly-average the Federal funds rate of about 5-3/8 per cent. The Committee agreed that if growth rates of the aggregates over the 2-month period be deviating significantly from the midpoints of the appeared to indicated ranges, the operational objective for the weekly-average Federal funds rate should be modified in an orderly fashion within a range of 5-1/4 to 5-3/4 per cent.1/ 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 real output of goods and services grew in the second quarter at about the rapid rate of the first quarter. In June industrial output continued to expand at a substantial pace. The on pages 27-28, the Committee modified 1/ Subsequently, as described the range by increasing the upper limit to 6 per cent.
rise in employment moderated, and the unemployment rate edged up from 6.9 to 7.1 per cent. Total retail sales remained at about the level reached in March; for the second quarter as a whole, however, sales were moderately above the first-quarter level. The wholesale price index for all commodities declined in June, owing to sharp decreases among farm products and foods; as in May, average prices of industrial commodities rose appreciably less than in earlier months of 1977. The index of average hourly earnings rose over the first half of the year at about the same pace that it had on the average during 1976. The average value of the dollar against leading foreign currencies has declined more than 1 per cent over the past month; the declines were especially marked against the Japanese, German, and Swiss currencies. In May the U.S. foreign trade deficit diminished somewhat from the high rate in the first 4 months of the year. M-1, after rising at an exceptionally rapid rate in April, increased little in May and grew at a moderate pace in June. Growth in M-2 and M-3 also was moderate in June. Inflows to banks of time and savings deposits included in M-2 picked up somewhat, after having slackened for a number of months, and inflows to nonbank thrift institutions remained sizable. Business short-term borrowing expanded sharply in June. Market interest rates in general have changed little in recent weeks. 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 and help resist inflationary pressures, while contributing to a sustainable pattern of inter national transactions.
Growth in M-1, M-2, and M-3 within ranges of 4 to 6-1/2 per cent, 7 to 9-1/2 per cent, and 8-1/2 to 11 per cent, respectively, from the second quarter of 1977 to the second quarter of 1978 appears to be consistent with these objectives. These ranges are subject to reconsideration at any time as conditions warrant. The Committee seeks to encourage near-term rates of growth in M-1 and M-2 on a path believed 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 July-August period to be within the ranges of 3-1/2 to 7-1/2 per cent for M-1 and 6-1/2 to 10-1/2 per cent for M-2. In the judgment of the Committee such growth rates are likely to be associated with a weekly-average Federal funds rate of about 5-3/8 per cent. If, giving approximately equal weight to M-1 and M-2, it appears that growth rates 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 5-1/4 to 5-3/4 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 August 4, nearly final estimates indicated that in July M-1 had grown at an annual rate of about 18-1/2 per cent and M-2 at a rate of about 16-1/2 per cent. For the July-August period staff projections suggested that the annual rates of growth for both aggregates would be well above the upper limits of the ranges specified by the Committee in the next-to-last paragraph of the domestic policy directive issued at the July meeting. The Federal funds rate had averaged 5.80 per cent in the statement week ended August 3, up from 5.45 per cent in the week ended July 27 and 5.35 per cent in the preceding 3 weeks. The Manager of the System Open Market Account was currently aiming at a funds rate of 5-3/4 per cent, the upper limit of the inter-meeting range specified in the directive. Against that background, Chairman Burns recommended on August 4 that the upper limit of the range for the Federal funds rate be increased to 6 per cent so that the Manager might have some additional leeway for operations, while continuing to take account of the current Treasury financing and financial market developments. He further recommended that
this additional leeway be used very gradually, and only in the event that the aggregates continued to register values far beyond the Committee's objectives. On August 5, 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 July 19, 1977, by increasing the upper limit from 5-3/4 to 6 per cent. Votes for this action: Messrs. Burns, Jackson, Mayo, Morris, Partee, Roos, Wallich, Balles, and Timlen. Absent and not voting: Messrs. Coldwell, Gardner, Guffey, Lilly, and Volcker. (Messrs. Balles and Timlen voted as alternates for Messrs. Guffey and Volcker, respectively.)
Also: Minutes of Actions