August 16, 1977 FOMC Record of Policy Actions

FOMC minutes

conclusion of the discussion the At the decided that growth in M-1 and M-2 over the Committee annual rates within ranges August-September period at of 0 to 5 per cent and 3 to 8 per cent, respectively, be appropriate. It was understood that in assessing would of these aggregates the Manager should continue the behavior equal weight to the behavior of M-1 to give approximately and M-2. It was the Committee's judgment that such growth rates were likely to be associated with a weekly-average Federal funds rate of about 6 per cent. The members agreed that if growth rates of the aggregates over the 2-month period appeared to be deviating significantly from the midpoints of the indicated ranges, the operational objective for the weekly-average Federal funds rate should be modified in an orderly fashion within a range of 5-3/4 to 6-1/4 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.

domestic policy directive was The following to the Federal Reserve Bank of New York: issued The information reviewed at this meeting real output of goods and services suggests that rapidly in the current quarter is growing less than in the second quarter. In July industrial output rose a little less than in June. The in payroll employment in nonfarm establish rise was substantial. According to the household ments survey data, total nonagricultural employment was unchanged and the unemployment rate edged down to 6.9 per cent, the same as in May. The dollar value of total retail sales rose somewhat, after 2 months of decline. The wholesale price index for all commodities was about unchanged in July; average prices of farm products and foods declined sharply further, and average commodities continued to prices of industrial rise at a more moderate pace than in the early months of 1977. The index of average hourly earnings has continued to advance at about the same pace that it had on the average during 1976. The weighted average exchange rate for the dollar against leading foreign currencies has recovered more than 1 per cent from the low point reached in late July. In June the U.S. foreign trade deficit rose sharply, and the deficit was larger for the second quarter as a whole than for the first. The increase in M-1 was exceptionally large in July. Inflows to banks of the time and savings deposits included in the broader monetary aggregates strengthened, and growth in M-2 and M-3 also accelerated sharply. Business short-term borrowing moderated from

June. Interest rates the rapid pace in and intermediate-term market on shortinstruments have risen appreciably in recent weeks, while yields on longer-term bonds have changed little. 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 international transactions. At its meeting on July 19, 1977, the Committee agreed that growth of M-l, 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 August-September period to be within the ranges of 0 to 5 per cent for M-1 and 3 to 8 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 6 per cent. If, giving approxi mately 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 indicated ranges, the operational objective the Federal funds rate shall be modified in for the an orderly fashion within a range of 5-3/4 to 6-1/4 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.