November 15, 1977 FOMC Record of Policy Actions

FOMC minutes

decisions for operations preferred to base member who on the behavior of the monetary aggregates primarily a wider range, one of 6 to 7 per cent. suggested the discussion the Committee At the conclusion of decided that operations in the period immediately ahead should be directed toward maintenance of prevailing money market conditions, as represented by the current level of the Federal funds rate. However, the members agreed that if growth in the aggregates should appear to approach or move beyond the limits of their specified ranges, the operational objective for the weekly-average Federal funds rate should be varied in an orderly fashion within a range of 6-1/4 to 6-3/4 per cent. With respect to the annual rates of growth in M-1 and M-2 over the November-December period, the Committee specified ranges of 1 to 7 per cent and 5 to 9 per cent, respectively. It was also agreed that in assessing the behavior of the aggregates, the Manager should give approximately equal weight to the behavior of M-1 and M-2.

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 and services is picking up in the current quarter from the reduced pace in the third quarter. The dollar value of total retail sales, which had been unchanged in September, rose substantially in October. Industrial production and employment increased somewhat. The unemployment rate, at 7.0 per cent, remained in the narrow range prevailing since April. The wholesale price index for all commodities rose sharply in October, as average prices of farm products and foods increased after having declined appreciably over the preceding 4 months. Prices of industrial commodities rose at about the average rate of the preceding 12 months. The index of average hourly earnings increased sharply in September and has advanced at a somewhat faster pace so far this year than it had on the average during 1976. The trade-weighted value of the dollar against major foreign currencies has declined further since mid-October. In September the U.S. foreign trade deficit was reduced some what, in part as a result of temporary factors.

M-1 and M-2 increased substantially in October, but growth slowed sharply in early November. In October inflows to banks of savings deposits and small the total of time deposits fell off, but denomination banks expanded the outstanding volume of CD's substantially as large-denomination credit demands strengthened. Inflows to nonbank thrift institutions slowed somewhat in October from the strong pace of the pre ceding 2 months. Following a substantial rise in member bank borrowings, Federal Reserve discount rates were increased from 5-3/4 to 6 per cent in late October. Market interest rates have fluctuated moderately since mid-October and most recently have tended to decline. 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 October 18, 1977, the Committee agreed that 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 which are believed rates currently expected, consistent with the to be on a path reasonably for monetary aggregates cited longer-run ranges in the preceding paragraph. Specifically, the Committee seeks to maintain the weekly-average Federal funds rate at about the current level, long as M-1 and M-2 appear to be growing so over the November-December period at annual rates within ranges of 1 to 7 per cent and 5 to 9 per cent, respectively. If, giving approximately equal weight to M-1 and M-2, appears that growth rates over the 2-month it period are approaching or moving beyond the limits of the indicated ranges, the opera tional 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. Votes for this action: Messrs. Burns, Volcker, Coldwell, Gardner, Guffey, Jackson, Lilly, Mayo, Morris, Partee, Roos, and Wallich. Votes against this action: None.