March 20, 1979 FOMC Record of Policy Actions

FOMC minutes

repayment of swap drawings, and the intermeeting limit was eliminated. The Committee also raised from $500 million to $1.5 billion the inter meeting limit on changes in the System's overall open position in foreign currencies specified in paragraph 2A. The procedural instructions as amended read as follows: In conducting operations pursuant to the authorization and direction of the Federal Open Market Committee as set forth in the Authorization for Foreign Currency Operations and the Foreign Currency Directive, the Federal Reserve Bank of New York, through the Manager of the System Open Market Account, shall be guided by the following procedural understandings with respect to consultations and clearance with the Committee, the Foreign Currency Subcommittee, and the Chairman of the Committee. All operations undertaken pursuant to such clearances shall be reported promptly to the Committee. 1. The Manager shall clear with the Subcommittee (or with the Chairman, if the Chairman believes that consultation with the Subcommittee is not feasible in the time available): A. Any operation that would result in a change in the System's overall open position in foreign currencies exceeding $300 million on any day or $600 million since the most recent regular meeting of the Committee. B. Any operation that would result in a change on any day in the System's net position in a single foreign currency exceeding $150 million, or $300 million when the operation is associated with repayment of swap drawings. C. Any operation that might generate a substantial volume of trading in a particular currency by the System, even though the change in the System's net position in that currency might be less than the limits specified in 1B. D. Any swap drawing proposed by a foreign bank not exceeding the larger of (i) $200 million, or (ii) 15 percent of the size of the swap arrangement.

2. The Manager shall clear with the Committee (or with the Subcommittee, if the Subcommittee believes that consultation with the full Committee is not feasible in the time available, or with the Chairman, if the Chairman believes that consultation with the Subcommittee is not feasible in the time available): A. Any operation that would result in a change in the System's overall open position in foreign currencies exceeding $1.5 billion since the most recent regular meeting of the Committee. B. Any swap drawing proposed by a foreign bank exceeding the larger of (i) $200 million or (ii) 15 percent of the size of the swap arrangement. 3. The Manager shall also consult with the Subcommittee or the Chairman about proposed swap drawings by the System, and about any operations that are not of a routine character. Votes for this action: Messrs. Miller, Volcker, Balles, Black, Kimbrel, Mayo, Partee, Mrs. Teeters, and Mr. Wallich. Vote against this action: Mr. Coldwell. Mr. Coldwell dissented from this action because he believed that the new limit of $1.5 billion specified in paragraph 2A was too high. He preferred a limit of $1 billion. 5. Authorization for domestic open market operations Paragraph 2 of the authorization for domestic open market operations specified a limit of $2 billion on Federal Reserve Bank holdings of special short-term certificates of indebtedness purchased directly from the Treasury. On March 29, 1979, the Committee voted to raise the limit to the statutory ceiling of $5 billion, effective immediately, for the period ending with the close of business on April 17, 1979, the date of the next scheduled meeting. Votes for this action: Messrs. Miller, Volcker, Balles, Black, Coldwell, Mayo, Partee, Mrs. Teeters, Messrs. Wallich, and Roos. Votes against this action: None. Absent: Mr. Kimbrel (Mr. Roos voted as alternate for Mr. Kimbrel).

The temporary debt ceiling of $798 billion was scheduled to expire at midnight on March 31, 1979, and the Congress was not expected to act on debt ceiling legislation before April 2, 1979. The Treasury had postponed several auctions of securities designed to raise funds to repay maturing debt and to meet cash outlays in early April. The Committee's action was taken on recommendation of Chairman Miller to provide maximum operating flexibility for the Treasury. On April 2, 1979, the Committee voted to modify paragraph 1C of the authorization, effective immediately, for the period until the close of business on April 6, 1979, to permit arrangement of one-day RP's with dealers, in connection with special Treasury financings, at the rate at which the securities were auctioned. Under paragraph 1C, rates on RP's with dealers must be determined by competitive bidding, unless otherwise expressly authorized by the Committee. Votes for this action: Messrs. Miller, Volcker, Balles, Black, Coldwell, Kimbrel, Mayo, Partee, Mrs. Teeters, and Mr. Wallich. Votes against this action: None. This action was taken on the recommendation of the management of the System Open Market Account. The management had advised that delay in enactment of a new temporary debt ceiling had created a severe cash problem for the Treasury, which might persist for some days. The Treasury planned to deal with the problem through the sale of sizable amounts of securities for payment on the day of the auction. However, dealers might experience difficulty in bidding in the auction, because awards of the securities might be made too late in the day to allow the dealers to make normal financing arrangements.

The Committee's action provided assistance in marketing such securities by assuring dealers that in the event financing proved to be difficult to obtain for the first day on which the securities were issued, financing could be made available for one day through repurchase agreements at the same rate at which the securities were sold.