September 19, 1978 FOMC Record of Policy Actions

FOMC minutes

meeting on July 18, 1978, the Committee At its agreed that these objectives would be furthered of M-1, M-2, and M-3 from the second by growth to the second quarter of 1979 at quarter of 1978 of 4 to 6-1/2 per cent, 6-1/2 rates within ranges to 9 per cent, and 7-1/2 to 10 per cent, respectively. The associated range for bank credit is 8-1/2 to 11-1/2 per cent. These ranges are subject to reconsideration at any time as conditions warrant." "In the short run, the Committee seeks to achieve bank reserve and money market conditions that are broadly consistent with the longer-run ranges for monetary aggregates cited above, while giving due regard to developing conditions in domestic and international financial markets more generally. Early in the period until the next regular meeting, System open market operations shall be directed at attaining a weekly-average Federal funds rate slightly above the current level. Subsequently, operations shall be directed at maintaining the weekly-average Federal funds rate within the range of 8-1/4 to 8-3/4 per cent. In deciding on the specific objective for the Federal funds rate the Manager shall be guided mainly by the relationship between the latest estimates of annual rates of growth in the September-October period of M-1 and M-2 and the following ranges of tolerance: 5 to 9 per cent for M-1 and 6-1/2 to 10-1/2 per cent for M-2. If, giving approximately equal weight to M-1 and M-2, their rates of growth appear to be significantly above or below the midpoints of the indicated ranges, the objective for the funds rate shall be raised or lowered in an orderly fashion within its range." "If the rates of growth in the aggregates appear to be above the upper limit or below the lower limit of the indicated ranges at a time when the objective for the funds rate has already been moved to the corresponding limit of its range, 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. Miller, Volcker, Baughman, Coldwell, Eastburn, Gardner, Jackson, Partee, Mrs. Teeters, and Mr. Winn. Votes against this action: Messrs. Wallich and Willes. Messrs. Wallich and Willes dissented from this action because they favored more vigorous measures to curb the rates of growth in the monetary aggregates. They believed that such measures were essential to deal with the problem of inflation and that they without a significant risk of precipitating a could be undertaken recession. In their view, current levels of interest rates adjusted for expected rates of inflation were not high, 2. Authorization for domestic open market operations At this meeting, Committee members voted to increase from $3 billion to $4 billion the limit on changes between Committee meetings in System Account holdings of U.S. Government and Federal agency securities specified in paragraph 1(a) of the authorization for domestic open market operations, effective immediately, for the period ending with the close of business on October 17, 1978. Votes for this action: Messrs. Miller, Volcker, Baughman, Coldwell, Eastburn, Gardner, Jackson, Partee, Mrs. Teeters, Messrs. Wallich, Willes, and Winn. Votes against this action: None.

recommendation of the action was taken on the This Management had advised Account. The Management of the System of Treasury and Federal agency that large-scale purchases interval might be over the coming inter-meeting securities bank reserves of a the effect on member needed to counter at the Reserve Banks increase in Treasury balances projected corporate tax receipts in mid-September. arising from meeting, on October 10, 1978, the Subsequent to this an additional increase of $1 billion, Committee voted to approve in the limit on changes between Committee meetings to $5 billion, and Federal agency securities specified in in U.S. Government paragraph 1(a) of the authorization for domestic open market operations, effective immediately, for the period ending with the close of business on October 17, 1978. Votes for this action: Messrs. Miller, Volcker, Baughman, Coldwell, Eastburn, Gardner, Jackson, Partee, Mrs. Teeters, Messrs. Wallich, Willes and Winn. Votes against this action: None. This action was taken on recommendation of the Management of the System Account. The Management had advised that, even though the Committee had voted at its September 19 meeting to raise the limit from $3 billion to $4 billion, large-scale purchases of Treasury and Federal agency securities had reduced the leeway for

9/19/-8 -18 further purchases during the inter-meeting period to about $335 million. It now appeared likely that additional purchases would be required as currency in circulation and other factors were absorbing reserves while Treasury balances continued at a high level, in part because of purchases of special Treasury securities by foreign central banks in association with their recent intervention in the foreign exchange markets.