March 29–30, 1982 FOMC Record of Policy Actions

FOMC minutes

3/29-30/82 -13- Messrs. Black and Wallich dissented from this action because they favored specification of somewhat lower rates for monetary growth from March to June than those adopted by the Committee, which would be associated with a relatively prompt return of M1 growth to its range for the year. Mr. Black believed that continued growth of M1 above its longer-run range for any extended period would adversely affect economic activity by exacerbating inflationary expectations and weakening markets for longer-term securities; for that reason, he felt that it was particu larly important to resist any surge in growth of M1 that might develop in April. In Mr. Wallich's opinion, it would be desirable to restrain the pace of the prospective recovery in economic activity, consistent with some reduction in the unemployment rate, to sustain a degree of pressure for continuation of the reduction in the underlying rate of inflation. 2. Review of continuing authorizations At this, the first regular meeting of the Federal Open Market Committee following the election of new members from the Federal Reserve Banks to serve for the year beginning March 1, 1982, the Committee followed its customary practice of reviewing all of its continuing authorizations and directives. The Committee reaffirmed the authorization for domestic open market operations, the authorization for foreign currency operations, the foreign currency directive, and the procedural instructions with respect to foreign currency operations in the forms in which they were currently outstanding.

3/29-30/82 Votes for these actions: Messrs. Volcker, Solomon, Balles, Black, Ford, Gramley, Partee, Rice, Mrs. Teeters, Messrs. Wallich and Winn. Votes against these actions: None. In reviewing the authorization for domestic open market opera tions, the Committee took special note of paragraph 3, which authorizes the Reserve Banks to engage in the lending of U.S. government securities held in the System Open Market Account under such instructions as the Committee might specify from time to time. That paragraph had been added to the authorization on October 7, 1969, on the basis of a judgment by the Committee that such lending of securities was reasonably necessary to the effective conduct of open market operations and to the implementa tion of open market policies, and on the understanding that the authori zation would be reviewed periodically. At this meeting the Committee concurred in the judgment of the Manager for Domestic Operations that the lending activity in question remained reasonably necessary and that the authorization should remain in effect on a continuing basis, with the understanding that the manager would monitor the lending operation closely and would recommend discontinuing it in the event that it was no longer reasonably necessary to the effective conduct of open market operations. 3. Agreement with Treasury to warehouse foreign currencies At its meeting on January 17-18, 1977, the Committee had agreed to a suggestion by the Treasury that the Federal Reserve undertake to "warehouse" foreign currencies--that is, to make spot purchases of foreign currencies from the Exchange Stabilization Fund and simultaneously to make

3/29-30/82 forward sales of the same currencies at the same exchange rate to the ESF. Pursuant to that agreement, the Committee had agreed that the Federal Reserve would be prepared to warehouse for the Treasury or for the ESF up to $5 billion of eligible foreign currencies. At this meeting the Committee reaffirmed the agreement on the terms adopted on March 18, 1980, with the understanding that it would be subject to annual review. Votes for this action: Messrs. Volcker, Solomon, Balles, Black, Ford, Gramley, Partee, Rice, Mrs. Teeters, Messrs. Wallich and Winn. Votes against this action: None. 4. Authorization for Domestic Open Market Operations On April 13-14, 1982, members of the Committee 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 May 18, 1982. Votes for this action: Messrs. Volcker, Solomon, Balles, Black, Gramley, Martin, Partee, Rice, Mrs. Teeters, Messrs. Wallich, Winn, and and Roos. Votes against this action: None. Mr. Roos voted as alternate for Mr. Ford. This action was taken on recommendation of the Manager for Domestic Operations. The Manager had advised that since the March meeting, large scale net purchases of securities had been undertaken to counter the effects on member bank reserves of increases in currency in circulation and in Treasury balances at Federal Reserve Banks. The amount of these purchases

3/29-30/82 -16- was approaching $3 billion, leaving no leeway for further purchases over the current intermeeting interval. It appeared likely that sizable additional purchases would be required in the period ahead because of a projected further rise in Treasury balances associated with expansion in tax receipts. On April 26-27, the Committee voted to approve an additional increase of $1 billion, to $6 billion, in the intermeeting limit on changes in holdings of U.S. government and federal agency securities, after the Manager had advised that the rise in Treasury balances at Federal Reserve Banks apparently would be considerably larger than anticipated earlier. Votes for this action: Messrs. Volcker, Solomon, Black, Martin, Partee, Rice, Mrs. Teeters, Messrs. Wallich, Winn, Guffey, and Roos. Votes against this action: None. Absent: Mr. Gramley. Messrs. Guffey and Roos voted as alternates for Messrs. Balles and Ford respectively.