FOMC Minutes

Meeting of Federal Open Market Committee November 20, 1979 MINUTES OF ACTIONS A meeting of the Federal Open Market Committee was held in the offices of the Board of Governors of the Federal Reserve System in Washington, D. C., on Tuesday, November 20, 1979, beginning at 9:30 a.m. PRESENT: Mr. Volcker, Chairman Mr. Balles Mr. Black Mr. Coldwell Mr. Kimbrel Mr. Mayo Mr. Partee Mr. Rice Mr. Schultz Mrs. Teeters Mr. Wallich Messrs. Guffey, Morris, Roos, Timlen, and Winn, Alternate Members of the Federal Open Market Committee Messrs. Baughman, Eastburn, and Willes, Presidents of the Federal Reserve Banks of Dallas, Philadelphia, and Minneapolis, respectively Mr. Mr. Mr. Mr. Mr. Mr. Altmann, Secretary Bernard, Assistant Secretary Petersen, General Counsel Mannion, 1/ Assistant General Counsel Axilrod, Economist Holmes, Adviser for Market Operations Messrs. Brandt, Henry, Keir, Kichline, Scheld, Truman, and Zeisel, Associate Economists Mr. Sternlight, Manager for Domestic Operations, System Open Market Account 1/ Entered the meeting following the ratification of System open market transactions in Government securities, agency obligations and bankers acceptances. 11/20/79 - 2 - Mr. Pardee, Manager for Foreign Operations, System Open Market Account Mr. Coyne, Assistant to the Board of Governors Messrs. Gemmill and Kalchbrenner, Associate Directors, Division of International Finance and Division of Research and Statistics, respectively, Board of Governors Mr. Prell, Deputy Associate Director, Division of Research and Statistics, Board of Governors Mr. Beck, Senior Economist, Banking Section, Division of Research and Statistics, Board of Governors Ms. Farar, Economist, Open Market Secre tariat, Board of Governors Mrs. Deck, Staff Assistant, Open Market Secretariat, Board of Governors Messrs. Balbach, Boehne, Burns, J. Davis, Eisenmenger, and Fousek, Senior Vice Presidents, Federal Reserve Banks of St. Louis, Philadelphia, Dallas, Cleveland, Boston, and New York, respectively Messrs. Bakstansky, Broaddus, Corrigan, and T. Davis, Vice Presidents, Federal Reserve Banks of New York, Richmond, New York, and Kansas City, respectively Mr. Bisignano, Director of Economic Analysis, Federal Reserve Bank of San Francisco Mr. Miller, Assistant Vice President, Federal Reserve Bank of Minneapolis Mr. Ozog, Manager, Securities Department, Federal Reserve Bank of New York By unanimous vote, the minutes of actions taken at the meetings of the Federal Open Market Committee held on September 18 and October 6, 1979, were approved. - 11/20/79 3 - By unanimous vote, System open market transactions in foreign currencies during the periods September 18 through October 5 and October 6 through November 19, 1979, were ratified. Renewal for further periods of three months of System drawings on the German Federal Bank maturing December 7 through 28, 1979, was noted without objection. By unanimous vote, the Committee approved the re newal for further periods of up to one year of the following swap arrangements, having the indicated amounts and maturity dates: Foreign bank Amount of arrangement (millions of $ equilavent) Austrian National Bank $ 250.0 Bank of England 3,000.0 Bank of Japan 5,000.0 Bank of Mexico 700.0 Bank of Norway 250.0 Bank of Sweden 300.0 Swiss National Bank 4,000.0 Bank for International Settlements600.0 Swiss francs Other authorized European cur 1,250.0 rencies National Bank of 1,000.0 Belgium National Bank of 250.0 Denmark 6,000.0 German Federal Bank 2,000.0 Bank of France 500.0 Netherlands Bank 2,000.0 Bank of Canada 3,000.0 Bank of Italy Term (months) Maturity date 12 mos. " 12/4/79 12/4/79 12/4/79 12/4/79 12/4/79 12/4/79 12/4/79 " " 12/4/79 12/4/79 12/20/79 12/28/79 12/28/79 12/28/79 12/28/79 12/28/79 12/28/79 11/20/79 - 4 - By unanimous vote, System open market transactions in Government securities, agency obligations, and bankers acceptances during the periods September 18 through October 5 and October 6 through November 19, 1979, were ratified. By unanimous vote, the Federal Reserve Bank of New York was authorized and directed, until otherwise directed by the Committee, to execute transactions in the System account in accordance with the following domestic policy directive: The information reviewed at this meeting sug gests that real output of goods and services is declining in the current quarter, after the third quarter rebound, and that prices on the average are continuing to rise rapidly. Retail sales, which had expanded sharply during the third quarter in both constant and current dollars, dropped in October. Industrial production remained near its midyear level. Nonfarm payroll employment rose consider ably, after three months of little growth, but the unemployment rate increased from 5.8 to 6.0 percent. Producer prices of finished goods continued to rise rapidly in October, in part because of further sharp increases in energy items and the spreading effects of earlier increases in energy costs. The rise in the index of average hourly earnings during the first 10 months of the year was close to the rapid pace during 1978. On October 6 the Federal Reserve announced a series of complementary actions directed toward assuring control over the expansion.of money and bank credit and toward curbing speculative excesses in commodity and financial markets, including foreign exchange markets. The actions included an increase in Federal Reserve Bank discount rates from 11 per cent to 12 percent; establishment of a marginal reserve requirement on increases in the total of managed liabilities of member banks, Edge corpora tions, and U. S. agencies and branches of foreign banks; and a shift in the conduct of open market operations to an approach placing greater emphasis in day-to-day operations on the supply of bank reserves and less emphasis on confining short-term fluctuations in the federal funds rate. 11/20/79 - 5 - Following the announcement on October 6, the downward pressure on the dollar in the exchange markets that had developed in September was reversed, and by the end of October the trade-weighted value of the dollar against major foreign currencies had In mid-November, however, risen about 3-1/2 percent. reflecting in part declined, the dollar of value the U. S. foreign The Iran. developments concerning trade deficit increased in September as the cost of oil imports rose, but the deficit was somewhat lower for the third quarter as a whole than for the second quarter. Growth of M-1, which had accelerated in September and was exceptionally rapid in the third quarter as a whole, slowed sharply in October to an annual rate of Expansion of interest-bearing deposits 2-1/2 percent. included in M-2 remained strong, as a rise in net flows into time deposits at commercial banks in res ponse to increased yields offset a contraction in Inflows of deposits at nonbank savings deposits. Flows into thrift institutions slowed somewhat. Growth of money market mutual funds accelerated. commercial bank credit moderated in October; never theless, banks increased their reliance on the negoti able, large-denomination CD's and other managed liabilities that became subject to the marginal reserve requirement in the statement week beginning Both short- and long-term market October 11. interest rates have risen sharply on balance since the early October announcement of the System's policy actions, although most recently rates have declined; mortgage interest rates have increased substantially further. Taking account of past and prospective develop ments in employment, unemployment, production, invest ment, real income, productivity, international trade and payments, and prices, the Federal Open Market Committee seeks to foster monetary and financial conditions that will resist inflationary pressures while encouraging moderate economic expansion and contributing to a sustainable pattern of international transactions. At its meeting on July 11, 1979, the Committee agreed that these objectives would be furthered by growth of M-1, M-2, and M-3 from the fourth quarter of 1978 to the fourth quarter of 1979 within ranges of 1-1/2 to 4-1/2 percent, 5 to 8 per cent, and 6 to 9 percent respectively, the same ranges 11/20/79 - 6 - The range for that had been established in February. M-1 had been established originally on the basis of an assumption that expansion of ATS and NOW accounts would dampen growth by about 3 percentage points over It now appears that expansion of such the year. accounts will dampen growth by about 1-1/2 percentage points over the year; thus after allowance for the deviation from the earlier estimate, the equivalent The associated range for M-1 is now 3 to 6 percent. 7-1/2 to 10-1/2 percent. range for bank credit is from that for the period The Committee anticipates of to the fourth quarter the fourth quarter of 1979 the same ranges, depending 1980, growth may be within upon emerging economic conditions and appropriate adjustments that may be required by legislation or judicical developments affecting interest-bearing transactions accounts. These ranges will be recon sidered at any time as conditions warrant. In the short run, the Committee seeks to restrain expansion of reserve aggregates to a pace consistent with deceleration in growth of M-1, M-2, and M-3 in the fourth quarter of 1979 to rates that would hold growth of these monetary aggregates over the whole period from the fourth quarter of 1978 to the fourth quarter of 1979 within the Committee's longer-run ranges, provided that in the period before the next regular meeting the weekly average federal funds rate remains within a range of 11-1/2 to 15-1/2 percent. If it appears during the period before the next meeting that the constraint on the federal funds rate is inconsistent with the objective for the expansion of reserves, the Manager for Domestic Operations is promptly to notify the Chairman who will then decide whether the situation calls for supplementary instructions from the.Committee. By unanimous vote, responsibility for making deter minations with respect to appeals of denial of access to Committee records, under the provisions of 271.4(d) of the 11/20/79 - 7 - Committee's Rules Regarding Availability of Information, was delegated to Mr. Schultz, and in his absence, to Mr. Coldwell. It was agreed that the next meeting of the Committee would be held on Wednesday, January 9, 1980, beginning at 9:30 a.m. The meeting adjourned. Secretary

Federal Reserve (1979, November 19). FOMC Minutes. Fomc Minutes, Federal Reserve. https://whenthefedspeaks.com/doc/fomc_minutes_19791120

@misc{wtfs_fomc_minutes_19791120,
  author = {Federal Reserve},
  title = {FOMC Minutes},
  year = {1979},
  month = {Nov},
  howpublished = {Fomc Minutes, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/fomc_minutes_19791120},
  note = {Retrieved via When the Fed Speaks corpus}
}