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FEDERAL RESERVE
release
press

For immediate release

March 24, 1975

The Federal Open Market Committee announced today that
it has voted to speed up publication of the records of policy
actions taken at each of its monthly meetings.
At its meeting of March 18, the Committee revised its
Rules Regarding the Availability of Information to reduce the
delay between a meeting and the publication of the information
regarding the domestic policy directive from approximately
90 days to approximately 45 days.
In view of this action, the FOMC and the Board of
Governors today released the attached record of policy actions
taken at the FOMC meeting of January 20-21, 1975. Under pre
vious rules, this record would not have been made available
until April 21. The record for the meeting held on February 19
will be released on or about April 7, 1975.
A delay of approximately 90 days had been in effect
since mid-1967 when the rules were changed to comply with the
Freedom of Information Act. Prior to 1967, the records of
policy actions were published only in the Board's Annual Report
to Congress.
In the light of experience, the Committee decided that
a delay as long as 90 days was no longer necessary to avoid an
unacceptable degree of risk that speculators would be able to
take unfair advantage of the information or that market reactions
would impair the effectiveness of the Committee's functions.
The records of policy actions also are published in
the Federal Reserve Bulletin and the Board's Annual Report.
The summary descriptions of economic and financial conditions
they contain are based on the information that was available
to the Committee at the time of the meeting, rather than on
data as they may have been revised since then.

Attachment

RECORD OF POLICY ACTIONS
OF THE FEDERAL OPEN MARKET COMMITTEE
Meeting held on January 20-21, 1975
1.

1/

Domestic policy directive
Preliminary estimates of the Commerce Department indicated

that real output of goods and services (real gross national pro
duct) had fallen at an annual rate of about 9 per cent in the
fourth quarter of 1974, after having declined at an average rate
of about 3.5 per cent over the first three quarters of the year.
Staff projections suggested that real economic activity would
continue to recede in the first half of 1975; that the rate of
increase in prices, while still rapid, would moderate; and that
nominal GNP would continue to grow at a slow pace.
In December retail sales had risen somewhat, according
to the advance estimate, after having declined considerably in
the preceding 3 months.

The index of industrial production

fell sharply further in December; curtailments in output were
large and widespread in part because of efforts to liquidate
inventories.

Employment cutbacks also were widespread, especially

among manufacturing establishments.

The unemployment rate rose

1/ This meeting began on the afternoon of January 20 and
continued on the following day.

1/20-21/75

from 6.5 to 7.1 per cent, and the number of persons with only

part-time jobs continued to increase.
Average wholesale prices of industrial commodities
were unchanged in December--after having risen much less rapidly
from August to November than earlier in the year--as declines
in a number of basic commodities offset increases in machinery
and other more highly fabricated products.

Wholesale prices

of farm and food products declined, following 2 months of
substantial increases.

During the final 3 months of 1974

the advance in the index of average hourly earnings for private
nonfarm production workers was considerably less rapid than in
the two previous quarters.
In his State of the Union message on January 15, the
President set forth a program of fiscal stimulus, which included
cash refunds of 1974 personal income taxes in two equal instal
ments--in May and September of this year--and an increase for

1 year in the investment tax credit for businesses and farmers.
The proposed tax reductions were estimated to amount to $12
billion for individuals and $4 billion for businesses and farmers.
In addition, the President proposed excise taxes and import fees
on petroleum and excise taxes on natural gas to reduce the use
of these energy sources; removal of price controls from domestic

1/20-21/75

crude oil to encourage production; and a tax to recover the
windfall profits resulting from the decontrol of prices. The
taxes and fees would yield $30 billion in Federal revenues,
on an annual basis, which would be returned to the economy
through a permanent reduction in taxes on corporate and
individual incomes; through payments of up to $80 to low-income
individuals, including some who would pay no Federal income
taxes; and through certain other measures.
Staff projections for the first half of 1975 in
essence were similar to those of 5 weeks earlier, although the
declines now expected in real GNPwere larger for the current
quarter and smaller for the second quarter.

The President's

fiscal program, if enacted, was expected to improve the prospects
for an upturn in economic activity in the second half of the
year but to have little impact before then, apart from adding
to disposable personal income toward the end of the second
quarter.

Accordingly, it was still anticipated that the rise

in personal consumption expenditures would be little, if any,
greater than the increase in prices; that the expansion in
business fixed investment outlays would fall short of the
increase in prices; that residential construction activity would
decline further in the current quarter and then turn up; and

1/20-21/75
that the rate of business inventory investment would fall
substantially in the first quarter and then shift to liquidation
in the next.
The exchange rate for the dollar against leading foreign
currencies--which had been declining since early Septemberfell somewhat further between mid-December and mid-January,
in association with decreases in interest rates in this country
relative to those in other major countries.

The U.S. foreign

trade deficit--after narrowing in September and October--remained
moderate in November, as both exports and imports rose sub
stantially.

Oil-exporting countries continued to add to their

investments in the United States, and large inflows and outflows
of bank-reported private capital were roughly offsetting.
At U.S. commercial banks total loans and investments
declined sharply from the end of November to the end of December,
reflecting in large part decreases in outstanding loans to
businesses and to nonbank financial institutions; banks
reduced their over-all holdings of securities slightly.

In

contrast with immediately preceding months, businesses reduced
their borrowings in the commercial paper market as well as at
banks, in part as a result of efforts to fund short-term debts.
In early January most banks reduced the prime rate applicable

-5-

1/20-21/75

to large corporations in two steps from 10-1/2 per cent to
10 per cent, but reductions in the rate continued to lag
behind declines in commercial paper rates.
2/
Growth in the narrowly defined money stock (M1)2/ slowed
to an annual rate of about 2 per cent in December.
the more broadly defined money stock (M2)3/

Growth in

also slowed as net

inflows to banks of time and savings deposits other than money
market certificates of deposit (CD's) declined sharply; however,
net inflows of deposits to nonbank thrift institutions continued
to improve.

Over the fourth quarter as a whole, M1 and M2 grew

at rates of 4 and nearly 7 per cent, respectively.4/ Weekly
data indicated that M1 had declined somewhat in early January
but that inflows to banks of consumer-type time and savings
deposits had picked up.
On January 20 the Board of Governors announced a re
duction in reserve requirements on the net demand deposits of
member commercial banks.

The action--which would release about

$1.1 billion in reserves to the banking system in the week
beginning February 13--was designed to permit further gradual
improvement in bank liquidity and to facilitate moderate growth
in the monetary aggregates.
2/ Private demand deposits plus currency in circulation.
3/ M1 plus commercial bank time and savings deposits other
than money market CD's.
4/ The growth rates cited for the quarter are calculated
on the basis of the daily-average level in the last month of
the quarter relative to that in the last month of the preceding
quarter.

1/20-21/75

System open market operations since the December 16-17
meeting had been guided by the Committee's decision to seek
bank reserve and money market conditions consistent with some
what more rapid growth in monetary aggregates over the months
ahead than had occurred in recent months, while taking account
of developments in domestic and international financial markets.
Data that had become available in the weeks immediately after
the December meeting suggested that in the December-January
period the aggregates would grow at rates near or below the
lower limits of the ranges of tolerance that had been specified
by the Committee.

Consequently, System operations persisently

had been directed toward further easing in bank reserve and
money market conditions.

In the statement week ending January 8,

the Federal funds rate had averaged slightly below 7-3/4 per
cent--down from about 8-3/4 per cent at the time of the December
meeting.
The data that became available on January 9 indicated
still greater weakness in the aggregates; it appeared that M1
and M2 would grow in the December-January period at rates well
below the lower limits of the specified ranges of tolerance.
The System currently was conducting reserve-supplying operations
thought to be consistent with a weekly average funds rate at

1/20-21/75

about the 7-1/2 per cent lower limit of its specified range

of tolerance.

Against the background of those developments

and to give the Manager greater flexibility, Chairman Burns
recommended on January 9 that the lower limit of the funds
rate constraint be reduced to 7-1/8 per cent for the period
remaining until the next Committee meeting.

The members of

the Committee concurred, and over most of that period the
funds rate was slightly above 7 per cent.
Short-term market interest rates declined substantially
further over the inter-meeting period, in response to the
weakening in business demands for short-term credit, to System
open market operations to ease bank reserve and money market
conditions, and to a reduction in Federal Reserve discount rates.
Discount rate reductions of 1/2 of a percentage point, to 7-1/4
per cent, at six Reserve Banks were announced on January 3, to
be effective on January 6; shortly thereafter, rates were
reduced at the remaining six Banks.

Over the inter-meeting

period the market rate on 3-month Treasury bills declined nearly
three-fourths of a percentage point, to about 6.40 per cent,
and rates on private short-term instruments declined considerably
more.

1/20-21/75
Yields on longer-term bonds in general changed little
in the inter-meeting period--despite the declines in short-term
rates--because corporate financing in the capital market had
been and was expected to remain substantial and prospective
Treasury financings were large.

The volume of public offerings

of corporate bonds in December was exceptionally heavy for that
season, and a near-record volume was in prospect for January.
In the home mortgage market contract interest rates on new
commitments for conventional mortgages in the primary market
and yields on commitments in the secondary market for Federally
underwritten mortgages declined further from early December
to mid-January.
The Treasury was expected to announce shortly the terms
of its mid-February refunding.

Of the maturing issues, $3.55

billion were held by the public.
The Committee decided that the economic situation and
outlook called for more rapid growth in monetary aggregates
over the months ahead than had occurred in recent months.

A

staff analysis suggested that--although M1 was not expanding

in January--the demand for money would pick up in February,
in part as a result of the lagged effects of earlier declines
in interest rates.

Nevertheless, it appeared likely that if

1/20-21/75

M1were to grow at a rate consistent with the Committee's
longer-run objectives for the monetary aggregates, money market
conditions would have to ease further in the period immediately
ahead.

It was expected that net inflows of consumer-type time

and savings deposits to banks and to nonbank thrift institutions
would be relatively strong.

Demands for bank credit appeared

likely to be moderate.
The Committee concluded that growth in M1 and M2 over
the January-February period at annual rates within ranges of
tolerance of 3-1/2 to 6-1/2 per cent and 7 to 10 per cent,
respectively, would be consistent with its longer-run objectives
for the monetary aggregates.

The members agreed that such

growth rates would be likely to involve growth in reserves
available to support private nonbank deposits (RPD's) within
a range of tolerance of 6-1/4 to 9-1/4 per cent.

They also

agreed that in the period until the next meeting the weekly
average Federal funds rate might be expected to vary in an
orderly fashion within a range of 6-1/2 to 7-1/4 per cent, if
necessary in the course of operations.
The members also agreed that, in the conduct of operations,
account should be taken of the forthcoming Treasury financing and
of developments in domestic and international financial markets.

1/20-21/75

-10-

It was understood that the Chairman might call upon the Committee
to consider the need for supplementary instructions before the
next scheduled meeting if significant inconsistencies appeared
to be developing among the Committee's various objectives and
constraints.
The following domestic policy directive was issued to
the Federal Reserve Bank of New York:
The information reviewed at this meeting suggests
that real output of goods and services fell sharply
in the fourth quarter of 1974 and that further declines
are in prospect for the months immediately ahead. In
December declines in industrial production and employ
ment again were sharp and widespread, and the unemploy
ment rate increased from 6.5 to 7.1 per cent. Average
wholesale prices of industrial commodities were unchanged,
after having risen much less rapidly from August to
November than earlier in the year, and prices of farm
and food products declined. In recent months increases
in average wage rates have been large, but not so large
as in the spring and summer.
In his State of the Union message, the President
set forth a program of fiscal stimulus, including
tax rebates for individuals and a temporary increase
in the investment tax credit for business. The
President also proposed a new program to reduce the
consumption of energy; the program includes new
taxes in the energy area along with measures of tax
relief that, on balance, are designed to have a
neutral effect on the size of the Federal deficit.
The dollar in December and early January con
tinued the gradual decline against leading foreign
currencies that began in September. In November,
as in October, the U.S. foreign trade deficit was
moderate; sizable inflows of official funds from

-11-

1/20-21/75

oil-exporting countries continued, while other
capital inflows and outflows reported by banks were

roughly offsetting.
The narrowly defined money stock grew at an
annual rate of 4 per cent over the fourth quarter
of 1974, while the more broadly defined measure
of the stock grew at a rate of nearly 7 per cent.
In December and early January, however, the narrowly

defined money stock changed little. Net inflows of
consumer-type time and savings deposits at banks
slowed sharply in December, although they continued
to improve at nonbank thrift institutions; in early
January deposit inflows at banks picked up. Busi
ness demands for short-term credit, both at banks
and in the commercial paper market, moderated
further in December, while demands in the long
term market remained strong. Over recent weeks
short-term market interest rates have declined

substantially, but yields on long-term securities
have changed little, on balance. Federal Reserve
discount rates were reduced from 7-3/4 to 7-1/4
per cent in early January, and on January 20 the
Board announced a reduction in reserve requirements
on demand deposits estimated to release $1.1 billion
in required reserves.
In light of the foregoing developments, it is

the policy of the Federal Open Market Committee,
while resisting inflationary pressures and working
toward equilibrium in the country's balance of pay
ments, to foster financial conditions conducive to
cushioning recessionary tendencies and stimulating
economic recovery.
To implement this policy, while taking account
of the forthcoming Treasury financing, developments
in domestic and international financial markets, and
the Board's action on reserve requirements, the Com
mittee seeks to achieve bank reserve and money market
conditions consistent with more rapid growth in mone
tary aggregates over the months ahead than has occur
red in recent months.

-12-

1/20-21/75

Votes for this action: Messrs.
Burns, Black, Bucher, Clay, Coldwell,
Holland, Kimbrel, Mitchell, Sheehan,
Wallich, Winn, and Debs. Votes
against this action: None.
Absent and not voting: Mr. Hayes.
(Mr. Debs voted as alternate for Mr.
Hayes.)
Subsequent to the meeting, on February 5, the available
data suggested that in January M1 had declined sharply and that
growth in M2 had been only modest.

Growth rates for the January

February period appeared to be well below the lower limits of
the ranges of tolerance specified by the Committee.

The weakness

in the monetary aggregates wholly reflected the behavior of
demand deposits; growth in consumer-type time deposits remained
relatively strong.

The System Account Manager currently was

endeavoring to supply reserves at a rate thought to be consistent
with a Federal funds rate of 6-1/2 per cent, the lower limit of
the range of tolerance that had been specified by the Committee.
On February 5 a majority of the members concurred in the Chairman's
recommendation that, in light of those developments and of the
reduction in discount rates effective that day, the lower limit
of the funds rate constraint be reduced to 6-1/4 per cent.
Mr. Sheehan did not concur, because he preferred to reduce the
lower limit of the funds rate constraint to 6 per cent, rather
than 6-1/4 per cent.

1/20-21/75
2.

-13-

Amendment to authorization for domestic open market operations
On January 30 the Committee members voted to amend a

provision of paragraph 2 of the authorization for domestic open
market operations, which specified that a Reserve Bank other
than the New York Bank could purchase special certificates of
indebtedness directly from the Treasury only if the latter Bank
was closed, by striking the word "if" in the clause "or, if the
New York Bank is closed," and inserting in its place the words
"under special circumstances, such as when. . .."

With this

amendment, paragraph 2 read as follows:
The Federal Open Market Committee authorizes
and directs the Federal Reserve Bank of New York,
or, under special circumstances, such as when the
New York Reserve Bank is closed, any other Federal
Reserve Bank, to purchase directly from the Treasury
for its own account (with discretion, in cases where
it seems desirable, to issue participations to one
or more Federal Reserve Banks) such amounts of
special short-term certificates of indebtedness as
may be necessary from time to time for the temporary
accommodation of the Treasury; provided that the rate
charged on such certificates shall be a rate 1/4 of
1 per cent below the discount rate of the Federal
Reserve Bank of New York at the time of such pur
chases, and provided further that the total amount
of such certificates held at any one time by the
Federal Reserve Banks shall not exceed $1 billion.

1/20-21/75

-14-

Votes for this action: Messrs.
Burns, Black, Bucher, Clay, Coldwell,
Holland, Mitchell, Sheehan, Winn,
Baughman, and Debs. Votes against
this action: None.
Absent and not voting: Messrs.
(Mr. Debs
Hayes, Kimbrel, and Wallich.
voted as alternate for Mr. Hayes and
Mr. Baughman voted as alternate for
Mr. Kimbrel.)
This action was taken on the recommendation of the
Account Manager, who had advised Committee members that under
certain circumstances involving holidays not uniformly celebrated
throughout the country it would be convenient for the Treasury
if the authority for Reserve Banks other than New York to pur
chase special Treasury certificates of indebtedness was not
confined exclusively to times when the New York Reserve Bank
was closed.