October 17–18, 1977 FOMC Record of Policy Actions

FOMC minutes

10/17-18/77 in July and August. The wholesale price index for all commodities, which had declined on balance since May, advanced in September; average prices of farm products and foods changed little following 3 months of sharp decreases, and average prices of industrial commodities rose more than in the immediately preceding months. So far this year the index of average hourly earnings has advanced at about the same pace as it had on the average during 1976. Pressure on the dollar in foreign exchange markets emerged at the end of September, and the dollar has declined against most major foreign currencies and particularly against the Japanese yen. In August the U.S. foreign trade deficit widened; the July-August average was somewhat above the second-quarter rate. M-1 and M-2 expanded somewhat more in September than in August, and increased substantially further in early October. Inflows to banks of time and savings deposits increased little in September from the reduced rate in August, while inflows to nonbank thrift institutions remained strong. Short-term interest rates have risen further in recent weeks, and yields on longer-term market securities have increased. 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.

10/17-18/77 -32- Growth of M-1, M-2, and M-3 within ranges of 4 to 6-1/2 per cent, 6-1/2 to 9 per cent, and 8 to 10-1/2 per cent, respectively, from the third quarter of 1977 to the third quarter of 1978 appears to be consistent with these objectives. These ranges are subject to reconsideration at any time as conditions warrant. At this time, the Committee seeks to maintain about the prevailing money market conditions during the period immediately ahead, provided that monetary aggregates appear to be growing at approximately the rates currently expected, which are believed to be on a path reasonably consistent with the longer-run ranges for monetary aggregates cited in the preceding paragraph. Specifically, the Committee seeks to maintain the weekly average Federal funds rate at about 6-1/2 per cent, so long as M-1 and M-2 appear to be growing over the October-November period at annual rates within ranges of 3 to 8 per cent and 5-1/2 to 9-1/2 per cent, respectively. If, giving approximately equal weight to M-1 and M-2, it appears that growth rates over the 2-month period are approaching or moving beyond the limits of the indicated ranges, the operational objective for the weekly-average Federal funds rate shall be modified in an orderly fashion within a range of 6-1/4 to 6-3/4 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.

10/17-18/77 -33- Votes for this action; Messrs. Burns, Volcker, Coldwell, Gardner, Guffey, Jackson, Lilly, Mayo, Partee, Roos, and Wallich. Vote against this action: Mr. Morris. from this action because he was Mr. Morris dissented the Committee should take more aggressive action to convinced that growth in the monetary aggregates, which in his curb excessive would not be conducive to a healthy, long-term expansion opinion He also believed that short-term interest rates in the economy. somewhat further without significantly damaging short could rise term prospects for economic activity. 2. Authorization for domestic open market operations voted to reduce from $3 billion to Committee members $2 billion the limit on Federal Reserve Bank holdings of special short-term certificates of indebtedness purchased directly from the Treasury, specified in paragraph 2 of the authorization for domestic open market operations, effective immediately. Votes for this action: Messrs. Burns, Volcker, Coldwell, Gardner, Guffey, Jackson, Lilly, Mayo, Morris, Partee, Roos, and Wallich. Votes against this action: None.

10/17-18/77 was taken on the recommendation of Chairman This action when the temporary debt ceiling was Burns. On September 30, 1977, midnight, Committee members had voted to raise the due to expire at holdings of directly purchased certificates of limit on System from $2 billion to $3 billion, and the Treasury had indebtedness billion certificate to the Federal Reserve Bank of issued a $2.5 New York. The Treasury had retired the certificate on October 4, following approval of legislation increasing the debt ceiling, and the need for the higher limit had passed.