November 18, 1980 FOMC Record of Policy Actions

FOMC minutes

conference on November 26, the Committee raised the upper telephone the intermeeting range for the funds rate to 18 percent. limit of On November 26, the Committee modified the domestic policy directive adopted at its meeting on November 18, 1980, to raise the upper limit of the range for the federal funds rate to 18 percent. Votes for this action: Messrs. Volcker, Gramley, Guffey, Morris, Partee, Rice, Schultz, Solomon, Wallich, and Baughman. Vote against this action: Mrs. Teeters. Absent: Messrs. Roos and Winn. (Mr. Baughman voted as alternate for Mr. Roos.) Mrs. Teeters dissented from this action for essentially the same reasons that she dissented from the action to adopt the domestic policy directive at the Committee's meeting on November 18, 1980. On December 4, after closing of the markets, the Board of an increase in Federal Reserve discount rates. In Governors announced light of the current level of market interest rates and consistent with to restrain excessive growth in money and credit, the existing policy Board approved an increase from 12 to 13 percent in the basic rate and an increase from 2 to 3 percentage points in the surcharge on frequent borrowings of large institutions, effective December 5. The increase in discount rates exerted additional upward pressure on the federal funds rate. In trading during the morning of December 5, the rate generally was well above 18 percent, the level to which the upper limit of the intermeeting range for the weekly average funds rate had been raised about a week earlier, and other short-term interest rates rose substantially as well. At the

same time, incoming data suggested that M-1A and M-1B currently might be growing a little less rapidly than projected a week earlier, which would imply a somewhat lower level of required reserves and also some reduction in member bank demands for reserves in relation to the supply being made available through open market operations. Thus, it was possible that the additional upward pressure on the federal funds rate would prove to be transitory. Alternatively, pursuit of the Committee's short-run objective for the growth of reserve might be associated with a federal funds rate above the upper limit of the existing range, even if some weakness in demands for reserves de veloped, but the extent of any upward pressure on the rate was difficult to gauge while markets were in the process of adjusting to the discount rate action. In light of these uncertainties, the Committee decided in a telephone conference in the afternoon of December 5 to take account of the repercussions of the increases in discount rates by providing the Manager for Domestic Operations with leeway to pursue the Committee's short-run objectives for the behavior of reserve aggregates without operations being precisely constrained in the current statement week by the 18 percent upper limit of the intermeeting range for the federal funds rate, pending another consultation in about a week if one appeared to be desirable. On December 5, the Committee modified the domestic policy directive adopted at its meeting on November 18, 1980, and subsequently modified on November 26, to take account of the action of the Board of Governors on December 4 to raise discount rates by providing leeway for pursuit of the Committee's short-run objectives for the behavior of reserve aggregates without operations being precisely constrained in the current state ment week by the 18 percent upper limit of the intermeeting range for the federal funds rate.

Votes for this action: Messrs. Volcker, Gramley, Guffey, Morris, Partee, Rice, Roos, Solomon, and Winn. Votes against this action: Mrs. Teeters and Mr. Wallich. Absent: Mr. Schultz. this action for essentially the Mrs. Teeters dissented from from the action to adopt the domestic same reasons that she dissented at the Committee's meeting on November 18, 1980. policy directive dissented from this action because he preferred Mr. Wallich federal funds rate range for the re to raise the upper limit of the mainder of the intermeeting period, which in his view would be con sistent with the action on the preceding day to raise Federal Reserve discount rates. The Committee held another telephone conference in the after noon of Friday, December 12. In the statement week ending December 10, the federal funds rate had averaged about 18-3/4 percent, and since then the rate had been in a range of 19 to 20 percent. At the same time, the most recent data tended to support the indications of the week before that M-1A and M-1B currently might be growing a little less rapidly than pro jected earlier and that the demand for reserves could be easing. Market conditions were unsettled, however, and there was considerable uncertainty about the relationship between money market conditions and objectives for the behavior of reserves. In these circumstances, the Committee decided to extend through the period before the next regular meeting, scheduled for December 19, the leeway for open market operations that it had voted to approve on December 5.

On December 12, the Committee modified the domestic policy directive issued on November 18, 1980, and subsequently modified on November 26 and December 5, to extend through the period before the next regular meeting leeway for pursuit of the Committee's short-run objectives for the behavior of reserve aggregates without operations being precisely constrained by the 18 percent upper limit of the intermeeting range for the federal funds rate. Votes for this action: Messrs. Volcker, Gramley, Guffey, Morris, Partee, Rice, Roos, Schultz, Solomon, and Winn. Vote against this action: Mrs. Teeters. Absent: Mr. Wallich. Mrs. Teeters dissented from this action for essentially the same reasons that she dissented from the action to adopt the domestic policy directive at the Committee's meeting on November 18, 1980.