November 21, 1978 FOMC Record of Policy Actions

FOMC minutes

Manager will promptly 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, Partee, Mrs. Teeters, Messrs. Wallich, Willes, and Winn. Votes against this action: None. Subsequent to the meeting, on December 8, nearly final estimates indicated that in November M-1 had declined and M-2 had expanded at a slow pace. For the November-December period, staff projections suggested that the annual rates of growth in M-1 and M-2 would be about 1/4 per cent and 6-1/4 per cent, respectively; for M-2, the projected rate was close to the lower limit of the 6 to 9-1/2 per cent range specified by the Committee. During recent weeks the Federal funds rate had averaged about 9-7/8 per cent. In light of the behavior of the aggregates, the Manager might, under normal circumstances, have sought to reduce the funds rate to about the 9-3/4 per cent lower limit of its specified range. Given current circumstances, however, Chairman Miller recommended that the Manager be instructed to continue to aim for a Federal funds rate of about 9-7/8 per cent during the period before the next regular meeting of the Committee, unless growth of the aggregates appeared to weaken significantly further.

On December 8, 1978, the Committee domestic policy directive adopted modified the 21, 1978, to call for at its meeting of November at maintaining the open market operations directed about the prevailing level of Federal funds rate at the period before the next 9-7/8 per cent during of the aggregates appeared to meeting unless growth weaken significantly further. Votes for this action: Messrs. Coldwell, Eastburn, Miller, Baughman, Teeters, Messrs. Wallich, Partee, Mrs. and Timlen. Votes against Willes, Winn, this action: None. Absent and not voting: (Mr. Timlen voted as alternate Mr. Volcker. for Mr. Volcker.) 2. Authorization for foreign currency operations At its meeting of March 21, 1978, the Committee had reaffirmed an agreement with the Treasury under which the Federal Reserve would undertake to "warehouse" foreign currencies held by the Exchange Stabilization Fund (ESF)- that is, to make spot purchases of foreign currencies from the ESF and simultaneously to make forward sales of the same currencies at the same exchange rate to the ESF--if that should prove necessary to enable the ESF to deal with potential liquidity strains. Specifically, the Committee had agreed that the Federal Reserve would be prepared, if requested by the Treasury, to warehouse up to $1-1/2 billion of eligible foreign currencies, of which half would be for periods of up to 12 months and half for periods of up to 6 months.

On December 14, 1978, the Committee amended paragraph 1A of the authorization for foreign currency operations to provide for transactions in foreign currencies directly with the U.S. Treasury as well as with the ESF. Concurrently, the Committee agreed to raise the amount of eligible foreign currencies that the Federal Reserve would be prepared to warehouse to $1-3/4 billion at this time. These actions were taken in view of the first issuance of Treasury securities denominated in foreign currencies as one of the measures announced on November 1 in implementation of the broad program to strengthen the dollar and thereby to counter continuing domestic inflationary pressures. The Treasury was scheduled to receive payment of somewhat more than 1-1/2 billion dollars equivalent of German marks on December 15, 1978. As amended, paragraph 1A read as follows: 1. The Federal Open Market Committee authorizes and directs the Federal Reserve Bank of New York, for System Open Market Account, to the extent necessary to carry out the Committee's foreign currency directive and express authorizations by the Committee pursuant thereto, and in conformity with such procedural instructions as the Committee may issue from time to time:

A. To purchase and sell the following foreign currencies in the form of cable transfers through spot or forward transactions on the open market at home and abroad, including transactions with the U.S. Treasury, with the U.S. Exchange Stabilization Fund established by Section 10 of the Gold Reserve Act of 1934, with foreign monetary authorities, with the Bank for International Settlements, and with other international financial institutions: Austrian schillings Belgian francs Canadian dollars Danish kroner Pounds sterling French francs German marks Italian lire Japanese yen Mexican pesos Netherlands guilders Norwegian kroner Swedish kronor Swiss francs Votes for this action: Messrs. Miller, Volcker, Baughman, Coldwell, Eastburn, Partee, Mrs. Teeters, Messrs. Wallich, Willes, and Winn. Votes against this action: None.