December 19, 1978 FOMC Record of Policy Actions

FOMC minutes

above, pending a review of the 10 per cent or slightly conference, tentatively planned situation in the telephone for January 12. the Committee modified the On December 29, 1978, policy directive adopted at its meeting domestic of December 19, 1978, to call for open market directed at maintaining the weekly operations rate at about 10 per cent average Federal funds or slightly above. Votes for this action: Messrs. Miller, Volcker, Baughman, Coldwell, Eastburn, Partee, Mrs. Teeters, Messrs. Wallich, Willes, and Winn. Votes against this action: None. On January 12 the Committee held a telephone conference to review the situation and to consider whether supplementary instructions were needed. However, no change was made in the instruction to the Manager to continue to direct open market operations toward maintaining the weekly average Federal funds rate at about 10 per cent or slightly above. 2. Authorization for foreign currency operations Paragraph 1D of the Committee's authorization for foreign currency operations authorizes the Federal Reserve Bank of New York, for the System Open Market Account, to maintain an over-all open position in all foreign currencies not to exceed $1.0 billion, unless a larger position is expressly authorized by the Committee. On November 1, 1978,

an open position of $5 billion had been authorized. At the meeting on December 19, 1978, the Committee authorized an increase in this limit to $8 billion to provide further flexibility for Federal Reserve operations in the foreign exchange markets undertaken pursuant to the Committee's foreign currency directive. Votes for this action: Messrs. Miller, Volcker, Baughman, Coldwell, Eastburn, Partee, Mrs. Teeters, Messrs. Wallich, Willes, and Winn. Votes against this action: None. Pursuant to an agreement with the Treasury under which the Federal Reserve would undertaken to "warehouse" foreign currencies--that is, to make spot purchases of foreign currencies and simultaneously to make forward sales of the same currencies at the same exchange rate--the Committee had agreed on December 14, 1978, to raise the amount that the Federal Reserve would be prepared to warehouse from $1-1/2 billion to $1-3/4 billion equivalent of such foreign currencies. That action had been taken in view of the impending receipt by the Treasury of somewhat more than $1-1/2 billion dollars equivalent of German marks resulting from its first issuance of securities denominated in foreign currencies as one of the measures of the broad program announced on November 1 to strengthen the dollar.

the Committee agreed to raise the At this meeting amount of eligible foreign currencies that the Federal Reserve to warehouse to $5 billion. The Committee would be prepared also agreed to warehouse such currencies for periods of up to the agreement had provided that half of 12 months; previously the authorized amount would be for periods of up to 6 months for periods of 12 months. These actions were taken and half of additional Treasury offerings of securities denominated in view in foreign currencies in prospect for early 1979. Votes for these actions: Messrs. Miller, Volcker, Baughman, Coldwell, Eastburn, Partee, Mrs. Teeters, Messrs. Wallich, Willes, and Winn. Votes against this action: None. 3. Authorization for domestic open market operations On January 15, 1979, Committee members voted to increase from $3 billion to $5 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 February 6, 1979. Votes for this action: Messrs. Miller, Volcker, Baughman, Coldwell, Eastburn, Partee, Mrs. Teeters, Messrs. Wallich, Willes, and Winn. Votes against this action: None.

This action was taken on recommendation of the System Account Manager. The Manager had advised that large scale sales of securities since the December meeting--required primarily to counter the effect on member bank reserves of an unusually and unexpectedly high level of float--had reduced the leeway for further sales to about $100 million. It appeared likely that additional sales would be required because current projections indicated a need for further reserve-absorbing operations over the coming weeks. Subsequently, Committee members voted to increase the limit specified in paragraph 1(a) by an additional $1 billion, to $6 billion, effective immediately, for the period ending with the close of business on February 6, 1979. Votes for this action: Messrs. Miller, Volcker, Baughman, Coldwell, Eastburn, Partee, Mrs. Teeters, Messrs. Wallich, Willes, and Winn. Votes against this action: None. This action was taken on recommendation of the Manager. On January 26 he had advised that, despite the Committee's action on January 15 to raise the inter-meeting limit to $5 billion, the leeway available for further sales would be only about $350 million as of the close of business on January 26. Since January 15 required reserves had been weaker than had been expected, and a decline of currency in circulation had provided reserves while float had remained high.