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Meeting of Federal Open Market Committee August 20, 1974 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. PRESENT: C., on Tuesday, Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Burns, Chairman1/ Hayes, Vice Chairman Black Bucher Clay Holland Kimbrel Mitchell Sheehan Wallich Winn Mr. August 20, 1974, at 9:30 a.m. Messrs. MacLaury and Morris, Alternate Members of the Federal Open Market Committee Messrs. Eastburn and Balles, Presidents of the Federal Reserve Banks of Philadelphia and San Francisco, respectively Mr. Broida, Secretary Mr. Altmann, Deputy Secretary Mr. Bernard, Assistant Secretary2/ Mr. O'Connell, General Counsel Mr. Partee, Senior Economist Mr. Axilrod, Economist (Domestic Finance) Messrs. Brandt,2/ Bryant, Doll,2/ Gramley, Hocter,2/ Parthemos, 2/ Pierce,2/ and Reynolds,2/ Associate Economists 1/ Entered meeting at point indicated. 2/ Attended first part of meeting only. 2/ 8/20/74 Mr. Coombs, Special Manager, System Open Market Account Mr. Sternlight, Deputy Manager, System Open Market Account Mr. Coyne, Assistant to the Board of Governors Mr. Wonnacott,1/ Associate Director, Division of International Finance, Board of Governors Messrs. Keir 1 / and Wernick,1/ Advisers, Division of Research and Statistics, Board of Governors Mr. Wendel,1/ Assistant Adviser, Division of Research and Statistics, Board of Governors Miss Pruitt,1/ Economist, Open Market Secretariat, Board of Governors Mrs. Ferrell,1/ Open Market Secretariat Assistant, Board of Governors Messrs. Baughman, Leonard, and Plant, First Vice Presidents, Federal Reserve Banks of Chicago, St. Louis, and Dallas, respectively Messrs. Eisenmenger,1/ Scheld,1/ and Sims, 1/ Senior Vice Presidents, Federal Reserve Banks of Boston, Chicago, and San Francisco, respectively Mr. Garvy,1/ Vice President and Senior Adviser, Federal Reserve Bank of New York Messrs. Jordan1/ and Green,1/Vice Presidents, Federal Reserve Banks of St. Louis and Dallas, res ectively Messrs. Kaminow 1/ and Kareken,1/ Economic Advisers, Federal Reserve Banks of Philadelphia and Minneapolis, respectively Mr. Ozog,1/ Manager, Acceptances and Securities, Federal Reserve Bank of New York 1/ Attended first part of meeting only. 8/20/74 The Secretary noted that Chairman Burns had been unavoidably detained, and that until his arrival Vice Chairman Hayes would serve as Acting Chairman. By unanimous vote, the minutes of actions taken at the meeting of the Federal Open Market Committee held on July 16, 1974, were approved. The memoranda of discussion for the telephone conference meeting of the Federal Open Market Committee held on July 5, 1974, and for the meeting of the Committee held on July 16, 1974, were accepted. By unanimous vote, the System open market transactions in foreign currencies during the period July 16 through August 14, 1974, were approved, ratified, and confirmed. Chairman Burns joined the meeting prior to the following action. By unanimous vote, the open market transactions in Government securities, agency obligations, and bankers' acceptances during the period July 16 through August 19, 1974, were approved, ratified, and confirmed. The following action was taken during the part of the meeting in which staff attendance was limited. 8/20/74 By unanimous vote, the Federal Reserve Bank of New York was authorized and directed, until otherwise directed by the Committee, to execute transactions for the System Account in accordance with the following domestic policy directive: The information reviewed at this meeting suggests that real output of goods and services is changing little in the current quarter, following the first-half decline, and that price and wage increases are continuing large. In July industrial production was unchanged from the May-June level, and nonfarm payroll employment declined further. The unemployment rate edged up to 5.3 per cent. Wholesale prices of farm and food products rose sharply, after having declined for 4 months, and increases among industrial commodities continued widespread and extraordi narily large. The new Administration has indicated that it will give high priority to combating inflation and that it will convene a summit meeting of the nation's economic leaders to that end. In recent weeks the dollar has appreciated some what further against leading foreign currencies. U.S. bank lending to foreign borrowers, especially in Japan, has apparently continued large, but inflows of foreign capital, particularly from oil-exporting countries, have also been large. The foreign trade deficit, although smaller in June than in May, widened substan tially from the first to the second quarter as the value of petroleum imports increased. The narrowly defined money stock rose only slightly in July, after having grown at an annual rate of 6 per cent over the first half of the year. Net inflows at banks of time deposits other than money market CD's slowed somewhat in July, and deposit experience at nonbank insti tutions worsened materially in July and early August. 8/20/74 -5 Growth in business loans and in total bank credit was substantial in July, although the pace of expansion slackened after the early part of the month. To finance loan growth, banks reduced their holdings of Treasury securities and increased their outstanding volume of large-denomination CD's by substantial amounts. Interest rates on most private market instruments have declined a little in recent weeks, and in association with some easing of tensions in financial markets, yield spreads between prime- and lower-quality issues--which had widened sharply--have narrowed. Yields on Government securities, particularly Treasury bills, have increased, in part because new Treasury offerings relieved a market shortage of such securities. In light of the foregoing developments, it is the policy of the Federal Open Market Committee to foster financial conditions conducive to resisting inflationary pressures, supporting a resumption of real economic growth, and achieving equilibrium in the country's balance of payments. To implement this policy, while taking account of developments in domestic and international financial markets, the Committee seeks to achieve bank reserve and money market conditions consistent with moderate growth in monetary aggregates over the months ahead. It was agreed that the next meeting of the Committee would be subject to the call of Chairman Burns. Secretary's note: On August 22, 1974, the members were advised that the Chairman had called for a meeting of the Committee to be held on Wednesday, September 11, 1974, at 9:30 a.m. The meeting adjourned. Secretary
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