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TRANSCRIPT
FEDERAL OPEN MARKET COMMITTEE MEETING
June 22, 1976
Prefatory Note
This transcript has been produced from the original raw transcript in the FOMC
Secretariat's files. The Secretariat has lightly edited the original to facilitate the reader's
understanding. Where one or more words were missed or garbled in the transcription, the
notation "unintelligible" has been inserted. In some instances, words have been added in brackets
to complete a speaker's thought or to correct an obvious transcription error or misstatement.
Errors undoubtedly remain. The raw transcript was not fully edited for accuracy at
the time it was produced because it was intended only as an aid to the Secretariat in preparing the
record of the Committee's policy actions. The edited transcript has not been reviewed by present
or past members of the Committee.
Aside from the editing to facilitate the reader's understanding, the only deletions
involve a very small amount of confidential information regarding foreign central banks,
businesses, and persons that are identified or identifiable. Deleted passages are indicated by gaps
in the text. All information deleted in this manner is exempt from disclosure under applicable
provisions of the Freedom of Information Act.

Content last modified 01/11/2011.

6/22/76

Meeting of Federal Open Market Committee

June 22, 1976

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, June 22, 1976,
at 9:30 a.m.
PRESENT:

Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.

Burns, Chairman
Volcker, Vice Chairman
Balles
Black
Coldwell
Gardner
Jackson
Lilly
Partee
Wallich
Winn
Baughman, Alternate for Mr. Kimbrel

Messrs. Guffey, Mayo, and Morris, Alternate
Members of the Federal Open Market
Committee
Messrs. MacLaury, Eastburn, and Roos, Presidents
of the Federal Reserve Banks of Minneapolis,
Philadelphia, and St. Louis, respectively
Mr. Broida, Secretary
Mr. Altmann,1/ Deputy Secretary
Mr. Bernard,1/ Assistant Secretary
Mr. O'Connell, General Counsel
Mr. Axilrod, Economist (Domestic Finance)
Mr. Gramleyl 1/Economist (Domestic Business)
Messrs. Brandt 1/ Davis,1/ Hocter,1/
Parthemos,1/ Reynolds,1/ and Zeisel,1/
Associate Economists

1/ Entered meeting at point indicated.
2/ Left meeting at point indicated.

6/22/76

Mr. Sternlight,1/ Deputy Manager for
Domestic Operations
Mr. Keir,1 / Assistant to the Board of
Governors
Mr. Guenther,2/ Assistant to the Board
of Governors
Mr. O'Brien, Special Assistant to the
Board of Governors
Mr. Gemmill,1/ Adviser, Division of Inter
national Finance, Board of Governors
Mrs. Farar,1/ Economist, Open Market
Secretariat, Board of Governors
Mrs. Deck,1 / Staff Assistant, Open Market
Secretariat, Board of Governors
Mr. Fossum, First Vice President of the
Federal Reserve Bank of Atlanta
Messrs. Scheld,1/ Eisenmenger,1/ Sims,1/

and Doll,1/ Senior Vice Presidents,
Federal Reserve Banks of Chicago, Boston,
San Francisco, and Kansas City, respectively
Messrs. Burns 1 / and Karnosky,1/ Vice Presidents,
Federal Reserve Banks of Dallas and
St. Louis respectively
Mr. Kareken,1/ Economic Adviser, Federal
Reserve Bank of Minneapolis
Ms. Greene,1/ Assistant Vice President,
Federal Reserve Bank of New
York
Ms. Tschinkel,1/ Adviser, Federal Reserve
Bank of New York
Mr. Mullineaux,1/ Research Officer, Federal
Reserve Bank of Philadelphia

1/ Entered meeting at point indicated.
2/ Left meeting at point indicated.

Transcript of Federal Open Market Committee Meeting of
June 22, 1976
[Executive session]

CHAIRMAN BURNS. Gentlemen, we have a special meeting, and our newest Governor
David Lilly, I am glad to say, has joined us this morning.
MR. LILLY. There are many old familiar faces around this table. I’m glad to be with you
all again.
CHAIRMAN BURNS. I might have said that, yes. Newest Governor, but an old Federal
Reserve hand.
As members of the Committee have been informed, Henry Reuss has filed a suit against
our individual District Banks and individual Bank Presidents. And I’ve asked Mr. Broida to
make copies of Mr. Reuss’s letter along with the civil action that he’s brought and asked that it
be made available to the Committee. I’ve written a brief note of acknowledgment merely saying
that I received his letter and that I will make sure that members of the Committee are properly
informed. Now, I’ve asked Tom O’Connell, our counsel, to tell us whatever he may be prepared
to say about this lawsuit. Mr. O’Connell.
MR. O’CONNELL. Yes, Mr. Chairman. As an administrative matter you might wish to
note that, on comments [to the press]-CHAIRMAN BURNS. I might just say one word I have very much on my mind. We have
had numerous inquiries from the press, and I’ve given strict directions to Mr. O’Connell not to
comment in any way, and that is precisely what I’m going to do if anyone asks my view--I will
say I have no comment. And I hope that each of you will do exactly the same. No good can
come from a [public] discussion of this lawsuit. Mr. O’Connell.
MR. O’CONNELL. Mr. Chairman, I checked with the courthouse this morning. This civil
action number is 76-1142. The case has been assigned to Judge Barrington Parker, who is the
United States District Court Judge for the District of Columbia.
The complaint, of course, asks that a three-judge court be appointed for the purpose of
determining a constitutional issue [raised] by the complaint. Mr. Reuss has challenged the
provisions of the Federal Reserve Act, section 12A, which is the provision containing the
constitution of the Committee. He asserts that this is in violation of the [U.S.] Constitution and
the provision there in article II , section 2, clause 2, which is the so-called appointments clause,
[which] provides basically that officers of the United States be appointed by the President with
the advice and consent of the Senate.
Mr. Reuss charges that the members designated as defendants--and as the Chairman said,
each Federal Reserve Bank President has been thus designated, or his alternate serving on the
Committee at this time--the five members and their alternates as well as each Reserve Bank--are
in every respect, insofar as they operate on this Committee, officers of the United States because

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of the import of their function and the impact of the actions of this Committee, and thus they
should be appointed by the President with the advice and consent of the Senate.
He therefore, asks in his [unintelligible] that the members of the Committee be enjoined
from functioning as members of the Committee and, secondly, that any action that is directed at
the Reserve Bank of New York, namely the Desk, insofar as that action [was] participated in by
any of the Reserve Bank Presidents, be enjoined. And he asks that the portion of section 12A of
the Federal Reserve Act designating appointment be declared unconstitutional, and for such
other and further relief as the court deems appropriate.
One final point, if I may, Mr. Chairman. There are several issues that we are going to have
to explore very carefully. Among them, preliminarily, will be the standing of this plaintiff to
bring this lawsuit. I think there is a significant question as to his standing to bring this suit. He
bases his alleged standing on one of two pieces. One, that he is a member of Congress and as a
member of Congress, as assigned by statute, has certain responsibilities. He is prevented from
carrying out these responsibilities insofar as they relate to oversight of monetary policy
formulation, credit regulation, the issuance of currency, etc.--that he is being deprived of this
right as a member of Congress. He assigns identification in the complaint to himself as
chairman, of course, of [his congressional] committee, but he doesn’t particularly assert that role
in the complaint.
In the alternative, he identifies himself as an individual who is the owner of government
obligations, having a value in excess of $20,000, and that the action [of the FOMC], insofar as
it’s participated in by the Presidents named as defendants, jeopardizes that ownership, and he
thus asks that their further action be enjoined. Mr. Chairman, without taking the time to give you
the basis for the question of standing, I think it is an issue that we will hopefully [unintelligible]
explore.
Quite apart from that are the constitutional issues that have been raised, among them a
consideration of whether or not the Board of Governors as such is head of a department within
the meaning of article II. Namely, if the Board is head of a department, its function in
approving, as required by law, the appointment of the [Reserve Bank] Presidents designated to
[serve on] this Committee may well meet [the requirements of] article II. This is an issue that we
will be exploring with the Department of Justice. I contacted them last night, Mr. Chairman, and
we gave them copies of the complaint this morning.
I was served this morning by the United States Marshall, with copies for each of the
Presidents named as defendants. I raised no question of the service process. There could have
been a technical question as to whether or not they can effect service on corporate Reserve Banks
in the city. But certainly he, the Marshall, would have come into the [Board Room] without
permission and served each defendant. So I accepted service on the part of the defendants, Mr.
Chairman, but it does not preclude us from raising technical points later.
At this point, the Department [of Justice] is taking no position. All of the issues I’ve
mentioned will be explored thoroughly. I believe the complaint gives the Committee members
20 days within which to respond. This has a technical meaning. Under the law, officers of the
United States or officials of the United States government have 60 days within which to respond

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to a complaint filed in federal district court. Having been assigned 20 days on the complaint, it’s
clear that the plaintiff’s position is that the defendants named are not officials or officers of the
United States, even though the complaint says they should be so determined.
The petition for a three-judge court is, in the first instance, before Judge Parker. As a
technical matter, it’s possible that we will attempt, after further consultation with the Department
[of Justice] and the advice of this Committee, to file a motion to dismiss this complaint for lack
of standing. [If it] were to be filed timely, [it would] perhaps disenable the Federal District
Court Judge from certifying the case to the chief judge at the Court of Appeals. It is the chief
judge who assigns two District Court Judges, including Judge Parker, [who, along with] a Court
of Appeals judge, constitute the three-judge constitutional court that is called to decide these
issues. Mr. Chairman, I think that’s all the information I have. I’ll be glad to respond to any
questions you may have.
CHAIRMAN BURNS. Thank you very much. Now, gentlemen, just one question. Our
12 Bank Presidents are going to be sued. They will need counsel. Will you serve as counsel
along with some members of the Justice Department, or do you have enough to use?
MR. O’CONNELL. At this point, Mr. Chairman, I would interpret this lawsuit against the
individuals named as in reality constituting a suit against a portion of the FOMC, and with your
approval, I think it appropriate that I represent these individuals, if that’s satisfactory, together
with counsel from the Justice Department. And we have asked [the Justice Department] for the
assignment of a specific individual who has worked on a number of constitutional law questions
under article II. They hope to provide a specialist in this area to be of assistance.
CHAIRMAN BURNS. Thank you. Any questions?
VICE CHAIRMAN VOLCKER. We could have counsel of our own, Mr. Chairman, and I
would hope that they would be involved in this process.
CHAIRMAN BURNS. Well, let me say a word about that. Fortunately, of course, each of
you has counsel of his own. And, of course, the opinions of your counsel should be transmitted,
but this must not be regarded as a suit that is brought against anyone of you as an individual. It’s
a lawsuit that is really brought against the fuller concept of the Federal Open Market Committee.
And therefore, a single unified legal defense, I take it, is essential. To draw upon the best legal
ability that we can--that we do have--is only good sense. But I think it would be clearly wrong
for individual members of this Committee to go off in individual directions. This must be a
single unified legal approach, at least that’s the way it appears to me.
MR. O’CONNELL. May I say, Mr. Chairman, that President Volcker’s general counsel is
also associate general counsel of this Committee, and because of that reason, I spoke at length on
the phone with him last night to apprise him of the lawsuit and its basic character.
CHAIRMAN BURNS. Good.
MR. MACLAURY. I was going to ask, Mr. Chairman, if Tom could tell us anything about
the case cited in the covering letter, of Buckley v. Valeo, or whether that’s even worth taking the
time to do now.

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MR. O’CONNELL. I’d be glad to briefly comment, Mr. Chairman, if I may. Buckley v.
Valeo is a suit that was decided in January of this year, and of course most recently has been
cited as precedent for upsetting the [1974 Federal Election Commission act]. That statute was
brought into question by the plaintiffs, [among whom] were congressional members and socalled political appointees, who had brought suit [in Buckley v. Valeo in January 1975] to have
the Federal Election Campaign Act of 1971, as amended in 1974, declared invalid for a number
of reasons.
Pertinent to [the Reuss] lawsuit is the portion of the [Buckley v. Valeo] complaint
[concerning] the members of the [Federal Election Commission], who were then eight in number
and two of whom were appointed by the President of the United States, two by the speaker of the
House, and two by the president pro tem of the Senate, in each case with the advice and consent
of both houses [of Congress]. The question raised was whether or not the appointees of the
House and Senate constituted so-called [unintelligible] officers of the United States within the
meaning of article II, section 2 [of the U.S. Constitution], the same article that is brought into
question by [the Reuss] lawsuit.
The Court of Appeals and then the Supreme Court ruled that [the appointment process]
portion of the [Federal Election Commission] act was unconstitutional [because] the functions
and the duties of the election commission members were so substantive and of such far-reaching
authority that [those performing them] had to be designated as officers of the United States. And
the failure of the statute to provide for appointment by the President with the advice and consent
[of the Senate] was a substantial failure to comply with the provisions of the Constitution. It was
thus overturned. It is that case that they cite in parallel here, saying that the functions performed
by this Committee are of such substantive nature that members performing those functions
should be appointed by the President with the advice and consent of the Senate. That’s the
parallel for the case, President MacLaury.
SPEAKER(?). Recognizing the wisdom of our not commenting at this stage of the
situation--obviously this is another act in the long-term effort of this man and his associates to
challenge the way [the Federal Reserve System] functions. It is conceivable, I would assume,
that as this evolves, this maneuver by Mr. Reuss could be made, in the minds of his colleagues in
the Congress and the nation generally, to work against him. This is another frantic--so,
somewhere along the line it’s possible that we would be encouraged, I assume, to react in the
public area to terms of this case. I mean, I think the man looks ridiculous in what he is doing.
CHAIRMAN BURNS. I think that the story in the Wall Street Journal this morning takes
care of the matter for the time being, beautifully. Mr. Reuss tried to get this kind of provision
through the Congress. He has [not been able] to do so even in the House Banking Committee.
And now, being frustrated, he turns to the courts. And I would suppose Mr. Reuss would look
rather ridiculous before his colleagues in the Congress. He has not been able to persuade his
colleagues. He has emphasized the importance of larger congressional controls. So suddenly, he
turns to the courts to resolve the problems that he could have resolved if he had had the support
and backing of the total Congress. I think that, for the time being certainly, we ought not to
comment on the case, and I would believe that others will do the commenting for us very
effectively.

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SPEAKER(?). My I say, sir, that the briefer story in the New York Times takes much the
same line.
CHAIRMAN BURNS. It’s hard for me to see how he can gain stature among his
colleagues in the Congress by this [unintelligible].
SPEAKER(?). If pressed by reports, I would [unintelligible] is a point to be made that we
cannot comment at this time in view of the legal proceeding, [which] we would complicate?
MR. O’CONNELL. That’s perfectly valid. The matter is now in court, and I think, with
good reason, at this time the pendency in court makes it wise to make no comment.
SPEAKER(?). I agree with you.
CHAIRMAN BURNS. I think that any comment runs the risk of igniting passions. And
the calm attitude on our part, I think is only good sense. There is a lawsuit, it’s before the courts,
it isn’t even proper to comment. Any other questions? Mr. Mayo.
MR. MAYO. Question for counsel. Tom, is there any legal risk that the decisions made
by this Committee today will be overturned in the process of this suit?
MR. O’CONNELL. In my judgment, there is none, President Mayo. The complaint does
not ask for a temporary restraining order. The case has been assigned as of this morning to
Judge Parker. There is nothing in the request that asks it be taken this morning before that court
or that he certify as a matter of emergency the appeal to the Court of Appeals for a three-judge
court. I would think that today’s actions by the Committee are clear of any impact from this suit.
MR. MAYO. Thank you.
CHAIRMAN BURNS. Mr. Balles.
MR. BALLES. Tom, you cast some doubt on whether Mr. Reuss really has standing to
bring this suit. Is there any need to [unintelligible] to perfect his position to get standing, or if he
doesn’t have standing, who else might? That’s the first question.
Second question, this may be premature, but if you care to express an informal tentative
view, how do you think this thing might turn out--if you fail on the possible order for dismissal
based on lack of standing--just on the merits of the case. Is there any reasonable clear possible
outcome one way or another?
MR. O’CONNELL. I’ll answer that very briefly. I can’t answer it, President Balles. On
the second question, the merits, the constitutionality, a lot would depend upon the composition of
the court, the three-judge court. If the chief judge at the Court of Appeals, Judge Bazelon,
assigns this to himself, together with Judge Parker and perhaps Judge Bryant, whom we’ve had
in the earlier case, I’d say a decision in our favor is at question. There are judges in the Federal
District Court here whom I would view with pleasure [if we were] to appear before [them] to
argue this question on its merits--the constitutionality of this statute--because [those judges]
would quickly pierce the allegation of unconstitutionality as it relates to this Committee, but I

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think favorably to the Committee. So a great deal will depend on the composition of the threejudge court on the constitutional issue.
On the earlier issue of standing, as to whether or not he can better perfect [his standing],
we had a case in 1963 in which I represented this Committee. It was the Bryant case, in
President MacLaury’s District, in Montana, and the same basic issue of the constitutionality of
the appointment process, although not exactly parallel, was then raised.
In that case, the plaintiff owned a Federal Reserve note, and he challenged the actions of
this Committee that impacted the value of that note. We filed a motion to dismiss there. He
asked for a three-judge court. The Federal District Judge, seeing that the Committee had
substantially disproved the likelihood of his recovery or the substantiality of his allegations,
granted our motion to dismiss and denied his right of recourse to a three-judge court. It is on that
thesis that I would like to believe that Mr. Reuss’s assertion of his status as a member of
Congress on one hand, or his ownership of government securities on the other, [doesn’t]
sufficiently distinguish him from a total class of individuals as to warrant his standing to bring
suit. Hopefully he couldn’t improve [his standing], either.
MR. MACLAURY. Thank you, Tom.
MR. JACKSON. Mr. Chairman, what provisions do we have in the by-laws or
incorporation certificates of the Federal Reserve Banks to authorize the Banks to defend actions
of its elected officers in their official capacity? To commit the resources of the Banks to the
defense of the officers totally or the indemnification of the officers?
MR. O’CONNELL. If I may, Mr. Chairman, I think the basic right of the Banks to act in
behalf of the corporation is contained in the Federal Reserve Act, among enumerated powers of
the Federal Reserve Banks.
MR. JACKSON. What about the officers and their [unintelligible] capacity as such?
MR. O’CONNELL. Right. To my knowledge, there is no provision in law for
indemnification. And some months ago, we instituted a form of indemnification that would
assure indemnification for actions properly taken. As to the right of the Banks to defend
individually the actions of their officers, I’d suggest that, in these cases, where it’s alleged in a
federal district court suit that their actions are those of officers of the United States, [those cases
are] properly postured for defense either by this Committee as a body or by representation by the
Department of Justice. Does that satisfy your question?
CHAIRMAN BURNS. Any other question? Yes, Mr. Mayo.
MR. MAYO. This may not be too relevant, Tom, but it raises a question in my mind that,
if this is unconstitutional, wouldn’t the fixing of the discount rate by our boards of directors be
unconstitutional since that’s one of our major tools of monetary policy?
MR. O’CONNELL. Well, by analogy, President Mayo, the substantive quality of that
action, as it might be alleged in parallel with this suit certainly could be brought into question. I
think any number of such actions might parallel and be brought into issue by a plaintiff. Which

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is why I think that it’s critical that [we take] a very clear, careful approach to our response to this
complaint.
CHAIRMAN BURNS. Any other question? Yes, Mr. Guffey.
MR. GUFFEY. Tom, with respect to Chairman Reuss’s attorneys, did his Committee staff
file this case
MR. O’CONNELL. Yes. I should comment, President Guffey, Mr. Crews was formerly
in the legal division of the Board. He’s a very careful and astute lawyer. At the present time, to
the best of my knowledge, he is on the staff of Mr. Reuss. He visited me yesterday to advise me
of the filing of the suit.
MR. GUFFEY. It raises a second question, Tom--you and I have had discussions in the
past about the quality of legal work that may be tendered to us by the Justice Department.
MR. O’CONNELL. Yes.
MR. GUFFEY. And I guess I share some of Paul Volcker’s concern that sometime down
the road we might want to employ counsel to assist you rather than rely totally upon the Justice
Department. You find that that quality of defense is not as great as we’d like, and what I’m
suggesting is that it may be within the power of the Committee to [hire outside counsel]. I don’t
think we ought to lose sight of that fact.
MR. O’CONNELL. As I say, my conversation last night was with the assistant attorney
general and then with the chief for the general litigation section [at the Justice Department], the
latter gentlemen being, I think, a very high-quality lawyer. But the trouble is, of course, that
Denis Lender himself won’t actually pen the brief work. I don’t know yet to whom it will be
assigned. I’d like to believe that we can closet immediately with the Justice Department and
begin the course of thinking with respect to the makeup, composition, and functions of this
Committee so as to enable them to write the very, very [best] brief.
CHAIRMAN BURNS. I interpret Mr. Guffey’s question to me as follows: Suppose that
you reach the conclusion that outside counsel could be helpful and that some outstanding
constitutional lawyer might join you in the defense. I take it that was the question, and I would
assume that you would have the authority. Could you do that?
MR. O’CONNELL. I’d be both pleased and privileged to have such assistance. I would
say, Mr. Chairman-CHAIRMAN BURNS. We will have such assistance if you deem it advisable. That is, do
you have the authority to do that or would you need authority from this Committee to empower
you to employ a consultant if you reach the conclusion that outside legal counsel could be
helpful?
MR. O’CONNELL. I would ask the Committee’s authority to employ such counsel.
CHAIRMAN BURNS. Well, let’s give Mr. O’Connell that authority now.

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SPEAKER(?). So moved.
SPEAKER(?). Seconded.
CHAIRMAN BURNS. Any objection? All right. That is the authority, it’s not to hire
legal counsel-MR. O’CONNELL. I understand.
CHAIRMAN BURNS. --the authority is to hire legal counsel if you, in your judgment,
arrive at the conclusion that that would be helpful in defending the Committee, the individual
members of [unintelligible] against this lawsuit.
MR. O’CONNELL. I understand, Mr. Chairman.
MR. COLDWELL. Tom, is there any possibility that the Justice Department runs into a
conflict of interest in defending the Federal Open Market Committee against a congressman?
MR. O’CONNELL. I think the Department has first to answer the question, and I haven’t
yet explored it with them. Can the Department under title 5 represent individually named Bank
Presidents where, at least at the outset, you don’t have them constituting an agency of the United
States?
Now, once I get over that hurdle, the second question you’d impose, perhaps, may be
raised. I don’t know of another instance in which the [Justice] Department has been positioned
in representation of an agency against a member of Congress, or against the Committee itself,
and so forth. I do know that, on occasion when a committee of the Congress officially made
demands on this agency with respect to examination reports, and where the question of leakage
of information from this Board became an issue, a representative of the criminal division of the
Justice Department appeared before a committee of Congress and in effect represented the
position of the Chairman and the Board in calling in the FBI.
So there have been instances in which they’ve apparently taken the position that was
[unintelligible] to the thrust of the Committee. That’s not quite where you’re headed, but it may
give us a sense of their willingness to do so.
CHAIRMAN BURNS. Yes, Mr. Gardner?
MR. GARDNER. Tom, the Reserve Bank Presidents, the members of the Committee, are
defendants, along with the Banks. What does Reuss ask, considering the worst case? He asks
simply, in my view--and I would like your comments--that the court enjoin the defendant from
serving. That the court will enjoin the Banks from carrying out the order, that the court declare
part of the Federal Reserve Act unconstitutional. That seems to me to be the most significant
part of the [case], crippling our operations. On a worst-case basis, the court will-CHAIRMAN BURNS. You say crippled--[but if that is] the decision of the court, then the
powers of the Federal Open Market Committee would be taken over by the Federal Reserve
Board, and the Federal Reserve Board could act five minutes after the court decision is handed

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down. So the [Federal Reserve] System, in its operations, would not be crippled. At least that is
one interpretation.
SPEAKER(?). Well, Mr. Chairman, we get curious results if he enjoins the Banks from
carrying out open market operations. Conceivably that stops all of the action of this Committee.
The Committee itself does not conduct the open market operations, it must be done by the 12
Banks on the statute.
CHAIRMAN BURNS. It would have to be done on the basis of some understanding
between the Federal Reserve Board and the Banks, and immediately with the New York Bank in
its operations of the Desk.
SPEAKER(?). Well, I guess what I’m suggesting-CHAIRMAN BURNS. All that I’m trying to say is that if the worst happens, we are not
going to have a national financial crisis, as I see it.
MR. GARDNER. Mr. Chairman, I didn’t mean to open Pandora’s box. I was looking at
the [plaintiff’s] prayer for relief, and what I’m getting at is hopefully a comment from counsel on
the fact that this appears to me to be a totally technical “principal” suit, in which the individual
Bank Presidents do not appear to have any liability.
While we are discussing retaining counsel in assisting Mr. O’Connell, I’m just trying to
point out that on a worst-case basis, the plaintiff has simply asked for an injunction that would
prevent the defendants from [unintelligible]. And the cost granted to the plaintiff, and
[unintelligible] what other and further relief may be proper--I don’t read into that any liability or
what have you [for the Presidents]. Do you?
MR. O’CONNELL. I do not. It’s always possible that the named defendants could be
asked [unintelligible] to share in any liability for loss of value in the so-called ownership of
government securities by the plaintiff. But that is such a nebulous allegation that I think there is
no possibility of personal liability of the named defendants. I agree with that-CHAIRMAN BURNS. Not in this lawsuit.
MR. O’CONNELL. In this lawsuit.
CHAIRMAN BURNS. But let’s say the court handed down the decision in favor of Mr.
Reuss. Then another lawsuit may be brought against Bank Presidents because of early actions in
which they participated--am I romancing?
MR. O’CONNELL. If I may comment-CHAIRMAN BURNS. The court hands down the decision in favor of Mr. Reuss, and I
bring a lawsuit on the grounds that my personal fortune has been hurt because interest rates went
up. And this increase in interest rates and loss in capital value of the securities that are held was
brought about by the Bank Presidents acting unlawfully in this Committee. Acting
unconstitutionally. I couldn’t do that?

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MR. O’CONNELL. You could bring such a complaint. I would question even the
possibility of recovery, Mr. Chairman, for the reason that prior to this suit, actions taken by the
Presidents as members of this Committee were pursuant to lawful authority. And if the court
should determine that, pursuant to Mr. Reuss’s complaint, the provision of law is
unconstitutional, there can be no direct attribution in that finding to the members’ actions.
CHAIRMAN BURNS. I understand. Let me ask this question. Is Mr. Reuss acting as
chairman of the House Banking Committee or as a private citizen?
MR. O’CONNELL. A little bit of both, Mr. Chairman. He alleges as a ground for
standing that he is a member of Congress and is thus bringing this suit. He enumerates the fact
that he’s also chairman of the committee. The letter transmitting advice of this suit, addressed to
you, to which we responded, was signed by him as chairman of the committee. It’s a little bit
difficult to sort out the position in which he purports to hold himself-CHAIRMAN BURNS. Personally, I would think he’d be in some difficulty with his
committee to the extent that he acts in this capacity as chairman of the committee. I assume that
he hasn’t consulted with his full committee.
SPEAKER(?). Is it not conceivable that his committee could disavow this action and
remove him as chairman? In other words, when things start working within-CHAIRMAN BURNS. I would think so.
MR. O’CONNELL. Well, except that I think that nothing in his complaint--if I may, he
describes himself on page 2 of the complaint as, “plaintiff is a member of the United States
House of Representatives, Chairman of the Committee on Banking, Currency, and Housing,
which pursuant to rule 101D of the Rules of the House has jurisdiction over legislative matters
relating to [unintelligible].” And he describes, of course, the rules’ description of the function of
that committee. [The text continues,] “The plaintiff is also Chairman of the Subcommittee on
International Economics and the Joint Economic Committee, established” etc. And “The
plaintiff is the owner of certain marketable bonds whose aggregate costs,” etc. “$20,000.”
This is his description of himself as plaintiff. It mixes his position as a member of the
Congress, as a private citizen with ownership of government securities, and as chairman of two
[congressional] committees.
CHAIRMAN BURNS. Well, I don’t know if members of [his] committee would react, but
a member of the committee might raise the question about the propriety of Mr. Reuss’s acting in
this manner without first consulting with the committee. That is, bringing the lawsuit,
addressing such a letter to me, and using legal staff of the committee for the purpose.
MR. O’CONNELL. Now, I should say that, to the best of my knowledge, Mr. Crews,
plaintiff’s counsel, is an employee of that staff. I stand subject to correction. I’ll try to ascertain
that today. He may be outside counsel. The last I knew he was on the-SPEAKER(?). He is on the Hill. He is not listed as a member of the committee’s staff.
Although I think what he said earlier, Tom, is probably that he is a member of Reuss’s personal

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staff. I think we also should say that removing [unintelligible] as committee chairman--it appears
that the final judgment on that rests with the Democratic caucus. The House Banking Committee
as such would not remove the committee chairman, only the Democratic caucus could take such
a position.
CHAIRMAN BURNS. Well, there is another dimension that I think you should bear in
mind, Tom. The President of the United States is indirectly involved in this case, because what
is being questioned is the exercise of his appointment power. And that may possibly have some
bearing on how the Justice Department looks at the case, and that ties in with a question that
Governor Coldwell raised before. All I suggest is that you keep this dimension in mind.
MR. O’CONNELL. I shall, Mr. Chairman. It could be asserted that the complaint in its
deepest meaning is asserting the authority of the [U.S.] President and supporting that authority.
CHAIRMAN BURNS. And it’s an authority that [U.S.] Presidents traditionally and
constitutionally will seek to defend. That is the point of my comment.
MR. O’CONNELL. May I make one further comment, too, Mr. Chairman, a matter that
we have touched upon before the Committee and as to which you counseled that it be treated
with the utmost confidence. That relates to the Government in the Sunshine legislation.
If the language of the bill as now proposed with respect to the definition of agency were to
be enacted into law, we have [stated] the possibility that this Committee could take the position
that the law is not applicable to the Committee because the members of the Committee are not
appointed to such a position by the President. Now, if that’s the issue, I will want very carefully
and gingerly to approach our defense in this case with respect to whether or not the members of
this Committee are officers of the United States and should be appointed by the President, etc. I
am merely advising in advance that I want to walk a very careful line, Mr. Chairman.
CHAIRMAN BURNS. Very good. Any other questions? I think we have probably gone
as far as we can on informing ourselves about this lawsuit.
MR. O’CONNELL. Mr. Chairman, I apologize, I should advise that I’ve arranged at five
o’clock this evening for a conference call to the counsel of each of the Reserve Banks merely to
apprise them of the content of this complaint and its general makeup.
CHAIRMAN BURNS. Very good.
MR. WALLICH. If [we lose] the suit, would that affect any past actions taken by the
Committee?
CHAIRMAN BURNS. I think Tom has already answered that question.
MR. O’CONNELL. In my judgment, Governor, I would argue that on the basis of the
complaint itself, there’s no necessary application to previous actions of the Committee, and it
could be all futuristic in terms of its applicability, depending on what the Court of Appeals
finally rules. I think it would not have any impact on past actions. Although as the Chairman

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has mentioned, we can’t preclude citizen John, on the basis of the decision of the Court of
Appeals, from filing suit, [unintelligible] past injury.
CHAIRMAN BURNS. Gentlemen, I need hardly say that life at the Federal Reserve is
very interesting. We’ll turn to our regular business.
[End of executive session]
CHAIRMAN BURNS. We would like to have the report of the Foreign Exchange
[Trading] Desk.
MS. GREENE. Thank you. It is a pleasure for me to be here. Since your last meeting, the
dollar continued [unintelligible] it tried to reach in early June at the highest levels against the
major European currencies since late January. This latest advance had been triggered by the
upward advancement in short-term U.S. interest rates; in addition, evidence of a further reduction
in unemployment, generally favorable [unintelligible] performance, and a lower trade deficit for
April underpin a generally positive [market] sentiment. Subsequently, the dollar eased
fractionally from early June levels once the rise in short-term interest rates leveled off, but then it
remained stable against many important currencies, especially the German mark, even as
tensions deepened in the market for other currencies.
Meanwhile, the markets focused their attentions on sterling and the Swiss franc. Sterling
continued its deep plunge as the market, now totally demoralized, took little notice of the recent
and substantial increase in Britain’s export sales or of a growing acceptance among trade union
memberships of the need for an accepted constraint on wages. Instead, concerns deepened as
[unintelligible] fall in sterling threatened to reignite union opposition to the government’s pay
policy.
At the same time, parliamentary debate over public spending [unintelligible] on the
government’s entire economic program. The Bank of England, which had earlier provided
heavy support for the pound, eased up its dollar sales as reserves came close to being depleted.
And with dealers also no longer willing to take sterling into their positions, the rate dropped
without resistance to just about $1.70, some 15.8 percent below levels of just last March. This
drop was far greater than any corrections needed simply to offset Britain’s relatively high
inflation rate; moreover, it had very serious consequences, not only for the British government’s
efforts to contain inflation at home but also on competitive relationships throughout Europe.
The announcement of a $5.3 billion dollar credit for England by the Group of Ten
countries, Switzerland, and the BIS [Bank for International Settlements] consequently had a
strongly positive and immediate impact and was followed up with simultaneous operations in
sterling by the Bank of England in both London and through the Federal Reserve Bank of New
York. It [unintelligible] a covering of short sterling positions and a sharp rebound in the
[unintelligible] race. Since then the government pay policy has been accepted by the Trade
Union Congress by an overwhelming majority. In addition, the Bank of England took advantage
of the shortage of liquidity in the domestic money market to engineer an even greater squeeze on
speculative positions [unintelligible] in the Eurosterling market.

6/22/76

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Nevertheless, the market for sterling remains fragile. Many participants were disappointed
that the government has not adopted further anti-inflationary measures, and consequently sterling
does not yet have sufficient buoyancy to offset a continuing flow of commercial offers in the
market. The Bank of England, therefore, has continued to provide supports for the crown,
selling--since the June 7 announcement at around the $1.77 level--almost $550 million. The bulk
of this will be covered by a requested [unintelligible] by the Bank of England on the Group of
Ten standby of 10 percent of the total arrangement, hopefully valued tomorrow.
By contrast, the Swiss franc remained strong against both the dollar and the German mark
during the period. To counter this trend, the Swiss authorities introduced harsh measures and cut
the discount rate to limit new inflows into Swiss francs. In addition, the [Swiss] National Bank
pledged to intervene massively if necessary; it also agreed that a German government borrowing
denominated in German marks be placed with a consortium of Swiss banks. This renewed
demonstration of determination to resist the Swiss franc’s persistent rise, together with Swiss
bidding for marks before the paydown of the German government loan, helped for a while to
relieve the upward pressure on the franc. But to the extent that the German mark was
simultaneously nudged higher in the European community [unintelligible], it brought those
currencies close to the band [unintelligible] such as the Dutch guilder, again under pressure.
Thus, the situation on the Continent also remained fluid. During the period, the Federal
Reserve was asked by several other central banks to intervene on their behalf in the New York
market. As exchange trading has become more and more a 24-hour business, many central
banks have found it useful to follow up operations in their respective markets with operations in
our market after their close. On that basis we have sold since May 18 more than $170 million
with the Swiss banks; with the Swiss National Bank we have purchased $77 million of sterling
from the Bank of England; and we have bought over $35 million worth of guilders with the
Netherlands Bank.
We did not intervene with the System account. Instead, we continued to acquire Belgian
francs, buying about $26 million worth, and repaid $20 million on our outstanding swap debt in
that currency. In addition, the System was able to add to its balances of German marks, which
now amount to $53 million equivalent, and only began to buy small amounts of Dutch guilders, a
currency which we have also used to intervene from time to time.
Our total balances apart from those held against outstanding swap debts now amount to
$58 million, well below the $150 million figure that the Committee agreed last September would
be appropriate. I have two points to raise with regard to recommendations.
CHAIRMAN BURNS. Are there any questions?
MR. EASTBURN. Do you have any idea where the British expect the pound to be?
MS. GREENE. I don’t have any information on that. I do feel--and it is just a feeling--that
they do wish to have the beneficial effects of the package demonstrated in the market, and so
they have wished to keep the rate higher than where it was at the time of the announcement.
MR. PARTEE. The first drawing, you are saying they will beat the mark?

6/22/76

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MS. GREENE. That’s right.
MR. PARTEE. And then there will be-MR. STERNLIGHT. About $200 million of it would have a reserve impact.
MR. PARTEE. That is our 200 of the total 550.
MR. STERNLIGHT. And as it happens, it would fit rather well with other things that are
happening to reserves. It presents no problem from that standpoint.
MR. WALLICH. From your observation of the market, when sterling was going down as
you said--without resistance, I think--would you have said that was a disorderly market?
SPEAKER(?). I think by all of the attributes of disorderliness we have spoken of in the
past, the sterling market would certainly qualify as being disorderly, yes.
SPEAKER(?). Would you call it a disorderly market, Governor Wallich?
MR. WALLICH. If I had to stretch a point in order to be able to intervene, I would, yes.
MR. COLDWELL. I presume this drawing you are talking about will be pro rata among
all the members of the group?
SPEAKER(?). As the request went out in the cable we received on Friday, it would be pro
rata against all central banks and governmental agencies. That includes all participants except
the BIS. There currently are negotiations under way as to whether or not that pro rata situation
should [include] or can exclude the BIS. The Treasury was under the assumption that the BIS
would be included in a manner similar to other participants; however, the BIS was under a
different impression, apparently, and the Bank of England will be going to the BIS to finance
outstanding short-dated swaps, which would be outstanding over the month-end.
So the total participation of the BIS, if [unintelligible] to conclude the financing of shortterm swaps, would be far greater than the $15 million that would [unintelligible] to a 10 percent
draw. There are a variety of issues outstanding, and it is for those reasons that we have not been
able to confirm the drawing or actually [unintelligible] on the takedown of this particular
drawing.
MR. MACLAURY. I was just going to ask, to the extent that OPEC countries’ sterling
balances seem to have been a major part of the pressures on sterling before the package, whether
they continue to be described as continuing commercial selling in the market following the
package.
MS. GREENE. Well, undoubtedly there has been some OPEC selling of sterling, because
there are some large sterling holders on the part of a few remaining OPEC members. But the
most surprising source of pressure there has been the many countries, not OPEC, that have
historically held large amounts of sterling and have been disinvesting their sterling holdings over
a period of several months. Probably they are equally important in terms of the amount of

6/22/76

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sterling sold. Furthermore, probably quantitatively the most important has been adverse
movements in commercial [unintelligible]. And the kind of continuing business we see in the
sterling market on the sale side does appear to be largely commercial.
MR. MACLAURY. In the case of diversification of previous sterling holders, do we have
any [unintelligible] as to whether they are diversifying into dollars or into a broader range of
currencies or into marks, or yen, or is it unknown?
MS. GREENE. Well, those countries with accounts with us look like they are diversifying
largely into dollars, but that would make sense from the point of view of the composition of their
trade. There may be other countries who are also diversifying with accounts elsewhere whose
activities we cannot so easily track.
CHAIRMAN BURNS. Any other questions? Thank you, Miss Green. And now a motion
to approve would be in order. I take it that the transactions for the Desk are approved. I should
have asked you this question, Miss Green. Is the Bundesbank participating in trading in sterling?
Did it intervene?
MS. GREENE. As it turned out, the Bundesbank did not need to, although there had been
some [unintelligible] into the weekend that the Bundesbank would join in the intervention on the
day of the announcement. As it turned out-CHAIRMAN BURNS. Did it not intervene at any time?
MS. GREENE. In sterling?
CHAIRMAN BURNS. In sterling, since the 5.3 billion standby [unintelligible]-MS. GREENE. As I said, they did not need to. The day of the announcement was a
holiday on the Continent, and the Bundesbank was closed, and the German market was closed
that day, and by the second day there was no need for such a [unintelligible].
CHAIRMAN BURNS. All right. Thank you. May we have your recommendations, Ms.
Greene?
MS. GREENE. Certainly. Two drawings on Federal Reserve swap drawings come due
before the next meeting. The first is the $360 million Mexican drawing. So far this year,
Mexico has made progress in bringing down inflation, while its current account position has
improved in response to the economic recovery here. But inasmuch as the swap matures just
after the July 4 presidential election date, we understood at the time of the drawing and also from
more recent conversations that the Bank of Mexico might well wish to renew. In that event, we
would recommend renewal for another two months.
CHAIRMAN BURNS. Very well. Any objection on the part of the Committee?
MR. COLDWELL. This is a first renewal?
MS. GREENE. This would be a first renewal.

6/22/76

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SPEAKER(?). You do not know for certain whether they will renew, but you think they
will.
MS. GREENE. As of a conversation yesterday, they think it very likely that they will wish
to.
CHAIRMAN BURNS. Any further questions?
MR. JACKSON. Do we have any information about activities along the Southwestern
border indicating a change in people’s attitude toward the peso? That might be a more general
question than the Desk would be informed about.
MR. BAUGHMAN. Mr. Chairman, Mr. Volcker, it may be irrelevant here. We continue
to hear a very substantial amount of discussion relative to a probable devaluation of the Mexican
currency. And we hear conversation on the part of U.S. businessmen conducting a substantial
amount of business in Mexico in the context of a 10- to 12-month time frame. The San Antonio
and El Paso Branches have not seen a reflow of the large volume of large denomination currency
withdrawn prior to Good Friday, as normally would have been expected to take place by this
time. We do see indications of continued demand for large denominations of U.S. currency.
They are not pressing us for it when we say we are out at the moment; they say “we’ll check
elsewhere,” which suggests that they may be finding such currency in commercial banks.
CHAIRMAN BURNS. All right, is the Committee of a mind to approve a renewal of the
Mexican drawing?
SPEAKER(?). Moved and seconded.
MS. GREENE. The next is the Italian situation. As Mr. Holmes anticipated at the last
meeting, the Bank of Italy did request a renewal of its second $250 million swap when it matures
on June 27. And the Bank of Italy agreed to the same conditions we had imposed upon renewal
of the first drawing. Now that first drawing, also $250 million, will be coming due for the
second time on July 22. According to my conversation with the Bank of Italy last week, they do
intend to repay, but so far the Bank of Italy has drawn on only $500 million of the total $750
million that we made available to them in February, and so they still have $250 million to be
drawn as they need. I don’t have a specific recommendation to make in this regard, but I think it
very possible that there may be a third request in the near future.
CHAIRMAN BURNS. Are there any questions?
SPEAKER(?). Is this a renewal?
MS. GREENE. When the draw issue comes up in July, when it matures, that would be at
the end of its first renewal period. As a condition of the drawing, they agreed to repay after a
first renewal period. And they intend to do so. However, they have $250 million left, and they
are obviously in an uncertain situation at the moment with the elections just completed, and so it
is very conceivable that within the next month there might be a request for a third drawing. [If
so,] that would, by the time of the next meeting, [leave] the total amount of their indebtedness
into the [unintelligible] unchanged.

6/22/76

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SPEAKER(?). You mean they might borrow from us in order to repay us?
SPEAKER(?). That’s what it sounds like to me.
MS. GREENE. In effect.
MR. PARTEE. In any event, this particular drawing would-MS. GREENE. I am not asking for a renewal. I am simply anticipating [unintelligible] of
letting in a third drawing, which might be at a time other than the repayment date. But in the
future.
MR. WALLICH. If that occurred, then [their debt] would never mature. Because they
would extinguish one debt by creating a new debt.
SPEAKER(?). We would have to be a party to that.
SPEAKER(?). I agree.
CHAIRMAN BURNS. And we are not likely to. No action is required on the Italian
[unintelligible]. Any further questions? We owe you thanks, Miss Green. We will now have
Mr. Gramley’s report on the economy.
MR. GRAMLEY. [Secretary's note: This statement was not found in Committee records.]
CHAIRMAN BURNS. We’re ready for the economics discussion, and let me just say one
word before we turn to that. At the last meeting, the Committee decided to expand on the
discussion in the Redbook, and particularly to gather information from our [Reserve Bank]
directors concerning the rate of utilization of industrial capacity. Mr. Mayo took the
responsibility of monitoring that effort, and this month’s Redbook is a great improvement over
the past. I have been very pleased with it, and I hope the rest of the Committee has found it of
substantial benefit as well.
Well, we’re ready for our discussion, and I think what we would want to do in the course
of this discussion is to not concentrate on detail and technical matters but either reinforce or
question the judgments that Mr. Gramley has expressed. Any comment?
MR. BAUGHMAN. Mr. Chairman--a speculative question, but I encountered in a number
of places a possible explanation of the weakness of retail sales, particularly in soft goods
recently. It is that, this year, people think there will be gas available for whatever kind of
vacation travel they might wish to engage in, and therefore that is affecting their current
spending. I was interested that this was not mentioned anywhere in the Redbook or Greenbook,
and I was wondering whether you had any reaction to it?
CHAIRMAN BURNS. You mean that people are saving up a little money to spend on
automobile travel in conjunction with vacation, etc.? That is the thought?
MR. BAUGHMAN. That’s what I’ve been running into.

6/22/76

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CHAIRMAN. Very interesting. I have not run into that. Mr. Gramley?
MR. GRAMLEY. I have not heard any such comment. I mentioned one thing in
connection with this weakness in retail sales, which is that if you believe the weekly figures, we
do now seem to be coming out of that. The weekly figures have been untrustworthy in the past,
and I don’t want to make too much of it, but since about the middle of May, the weekly figures
have suggested a general upward course, and the auto sales figures have also improved. There
could be all sorts of reasons for that, including what President Baughman and I think, which is
that there just isn’t any evidence at this point that this is anything other than a very temporary
pause.
MR. EASTBURN. Mr. Chairman, I might follow up on Ernie’s point with the comment
that Bicentennial tourism has not proved to be as large as expected. Our hotels are running only
80 to 85 percent of capacity, which is lower than they expected. I understand that this is not
confined to Philadelphia but it also applies to Washington.
MR. PARTEE. It’s true of Washington. There have been reports in the press.
CHAIRMAN BURNS. Well, should this be the peak season? Or is not the peak season
ahead of us? If 80 to 85 percent now, it might well be 95 percent for the first weeks in July.
MR. EASTBURN. Could be, and I think people are waiting to see [whether] their
expectations have been fulfilled.
MR. GRAMLEY. Press reports in Washington have it that the level of its tourism in
Washington is actually below last year’s.
CHAIRMAN BURNS. Below last?
MR. GRAMLEY. Hotel occupancy is below last year’s.
CHAIRMAN BURNS. Below last year’s. That’s very, very-SPEAKER(?). Mr. Chairman, we had a conversation over the weekend with the May
company people, headquartered in St. Louis, and they’re normally quite sensitive to trends.
They’re still totally on dead center in terms of not having a real feel for which way consumer
spending is going on the retail level. They’re cautious. They’re not pessimistic, but they’re far
from exuberant in terms of their analysis of the rest of the year.
CHAIRMAN BURNS. Mr. Partee.
MR. PARTEE. Well, let me say that, looking at this last chart that Mr. Gramley has
distributed, I think it certainly fortifies my view that this is a temporary kind of a move in retail
sales. I was fully expecting them to come back, too. Indeed, I would point out that the last
couple of months of observations in this retail sales line are based on preliminary data. And if
there was something of the kind that Ernie was mentioning going on, that is, a tendency not to
spend in conventional ways at the department stores and so forth, but rather to spend in the
course of vacations, that’s a very hard thing for retail data to pick up--the restaurant sales in

6/22/76

- 19 -

small towns and the motel rentals and that kind of thing. And so it could well be that what we’re
looking at here is going to largely disappear in the course of revisions. But I think that
[unintelligible] personal income and unemployment certainly suggest that retail sales ought to be
strengthening in the course of the summer as we go along.
CHAIRMAN BURNS. Thank you. Mr. Black, please.
MR. BLACK. Lyle, I think I come out about where the staff did on business spending on
plant and equipment, but I can’t find too many businessmen who feel that ebullient about it.
They seem to be worrying about EPA and OSHA, and you might think that would add to their
spending, but they seem to be having a reverse reaction. Of course, they’re worried about the
effects of inflation and the absence of a firm national energy policy and all sorts of things like
this. In the oil industry, for example, one of our directors is a high official and says that the move
to break up the oil companies is practically paralyzing the capital outlays by oil companies. And
since fears of this type tend to be exaggerated in an election year, I’m wondering if we are giving
enough weight to some of these feelings.
MR. GRAMLEY. I think that’s a pretty good question, President Black. My own feeling
is that we could be on the high side in our estimated increase in plant and equipment
expenditures. Our estimated increase for the calendar year 1976 exceeds by a considerable
margin what is projected in the Commerce anticipation survey. We have felt justified in [that
estimate] for several reasons.
One, our model suggests that the sort of accelerator effect we should be getting from past
increases in real consumer spending ought to be carrying through to the investment level in a
rather vigorous way. Two, business profits have been very good and are still moving up, and it
should induce some changes in planning. Third, new order figures have been unusually strong in
the past five months--a 16 percent increase since the first of this year.
There are some signs of hesitancy. The expectations figures do not look all that strong in
the first quarter. The Commerce survey does not show a particularly [large] improvement in
spending plans from February to May. The construction contractors’ work figures are weak.
And we are concerned also about this problem of potential divestiture in the oil industry.
For the time being, I would want to stick with this kind of forecast on the general grounds
that past cyclical experience rather strongly indicates that once you get a process of strongly
advancing consumer spending under way, it does feed back to the investment level. But the next
few months of information on plant and equipment spending could cause us to change our minds.
MR. BLACK. Well, I come out exactly there, too. The Redbook sort of reinforced what I
was hearing in our own area on that, and I just want to know how much we ought to weight it.
CHAIRMAN BURNS. Any other question or comment? Mr. Wallich, please.
MR. WALLICH. I think you said, Lyle, that no reduction in the rate of inflation was likely
during the present expansion, which makes me feel [that the projection is] rather ominous. Will
it take another period of slowdown in order to get any improvement in inflation? How are our

6/22/76

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wages likely to develop with productivity that would permit some reduction in inflation, perhaps
during the expansion?
MR. GRAMLEY. Well, what I said was, I don’t think we can realistically expect any
slowdown in the underlying rate of inflation--[although] I don’t think it’s impossible. What we
have been projecting is an increase in compensation per man-hour in the range of 8-1/2 percent
at annual rates. And an improvement in productivity of close to 3 percent, which would give us
about a 5-1/2 percent increase in unit labor costs.
I think favorable surprises could come from several sources. For one thing, we have,
generally speaking, been overestimating the rate of increase in wage rates this year. The rate of
increase in wages has slowed more than we anticipated, and I think that the relatively favorable
price developments have been importantly responsible. But the light collective bargaining
schedule thus far has also been a factor, and maybe we are going to get better performance than
we had thought.
But I think we would want to be conservative. I don’t think we can offer much hope for a
better wage rate performance than 8-1/2 percent in terms of compensation. We may get better
increases in productivity, but here again, our estimates seem to us realistic. A 3 percent rise is a
half percent above the long-term increase in productivity. A third source, of course, could be
bumper crops, and again we can’t forecast that. It could happen, but I don’t think one can
realistically hold out much hope for them.
MR. WALLICH. Imports is a possible source of lower prices?
MR. GRAMLEY. Gee, I would have a hard time imagining that all foreign countries
taken together are going to do better than we do in terms of rate of inflation. Some perhaps
will--Germany might. I wouldn’t think that the world from which we import generally will show
lower increases in prices than we do.
MR. REYNOLDS. But you may have in mind the rise of commodity prices that we
already had. But a lot of that, I think, may be a once-for-all adjustment. For example, the rise in
coffee prices and adjustment to a very [small] crop ought not to continue, it seems to me. And
even the rise in metals prices seems to owe something to cost increases and the fact that there’s
been a very sharp turnaround from inventory liquidations to [unintelligible] liquidation. But I
don’t think we are headed for a runaway boom situation.
SPEAKER(?). Given the determination of the recent EPC meeting, the country showed
not to have a runaway boom. That’s helpful.
MR. COLDWELL. Mr. Chairman, let me go back to the question of retail sales. Lyle, if
you take as an assumption that we have had a run-up in retail sales that was at least partly
attributable to price increases, do we have anything in our data which would indicate that price
increases [are easing], particularly for GAF [general merchandise, apparel, and furniture] stores,
which I gather are showing further weakness in the last month or two. Any evidence indicating a
slowdown in the price changes with that type of commodity?

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MR. GRAMLEY. Well, I don’t think we have data relating specifically to GAF stores. If
you were to look at apparel prices, though, I don’t think you would see any significant evidence
of a longer-term slowdown in prices. The increase in apparel commodities during May was half
of 1 percent. And it [was] running about 2 or 3 tenths in previous months.
CHAIRMAN BURNS. Lyle, what does the Federated Department Store price index
show?
MR. GRAMLEY. I haven’t looked at that recently, Mr. Chairman, and I haven’t-CHAIRMAN BURNS. I haven’t either, and it would be interesting to check because that
may provide an answer.
SPEAKER(?). At least a partial-MR. GRAMLEY. From what we have heard-CHAIRMAN BURNS. A partial answer to Mr. Coldwell’s question.
MR. GRAMLEY. From qualitative reports about the situation in retail stores, we could
see some price cutting. We’ve understood that nondurable goods inventories are sufficiently
high at the retail level as to generate some concern, and we have been told that there may be
some price concessions to help move some of this merchandise. They would presumably show
up in the June CPI.
MR. COLDWELL. In other words, there’s an element here, too, Lyle, in the question of
the kinds of commodities or goods which the public is buying. If there has been a shift in that
toward upgrading or something like that, which might be reflective of a kind of commodity that
is not growing at a price rate [unintelligible], you might be having an effect here on your total
retail sales.
MR. GRAMLEY. That’s a possibility, but from our discussions with people in the retail
industry, there just isn’t any doubt that sales overall slumped in April and stayed at relatively low
levels in May. They were quite discouraged, and they were looking at increases in inventories
that they found unacceptable.
CHAIRMAN BURNS. Mr. Partee.
MR. PARTEE. I don’t recall that you said anything about housing, Lyle, but would you
read the recent data as being rather disappointing?
MR. GRAMLEY. Yes, I would. The increase in starts in May was only a little over
2 percent. The permits figure was up around 5. What we are seeing is a smaller rate of rise in
the multifamily area than we had hoped for. The problems there are proving to be more deepseated and more intransigent than we had hoped for. And we have trimmed down somewhat our
increase in projected housing starts over the remainder of this year, mainly in the multifamily
area.

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In the single-family area, I think we can look forward to some further gradual
improvement. But here the discouraging factor is that sales seem to have leveled out. We just
are not getting any further increases in sales in either new or existing homes through April,
which is as far as the data go, and we did check qualitatively to see what May changes might
have been. And generally speaking, the market doesn’t seem to have shown any further
improvement other than the normal seasonal rise.
CHAIRMAN BURNS. Well, the homebuilders and realtors I’ve talked to on that
subject--I was surprised at the optimism that was being expressed by this very unscientific
sample of mine. Do you have any observations on that subject, Mr. Jackson?
MR. JACKSON. I think generally they’re optimistic. But there’s no question about the
figures Lyle talked about, that for the last three months the index of sales of existing homes is
down and has not come back up. The number of single-family units sold is down, and has not
come back, which tends to support everything, except, perhaps, the permits figure, which is up.
And although they are still generally optimistic, there’s no question about this.
CHAIRMAN BURNS. The permits figure is up, and multifamily starts were up rather
sharply last month.
MR. JACKSON. Up from a very low level--a less-low level I guess is about the best way
you could say it.
CHAIRMAN BURNS. Mr. Winn?
MR. WINN. Two things, Mr. Chairman. One, there is perhaps more seasonality in retail
inventories than we recognize, and to the extent that they get caught with spring merchandise,
particularly in the nondurable things, they can’t always have price sales to get rid of it in
summertime. So it takes a little time to work some of these things off, and price cutting just
doesn’t always do it.
Second is a remark on commodities. I think the tremendous pickup in the volume of
commodity transactions, particularly in copper, lead, and zinc, would lead you to believe that
maybe there’s more than just consumption in that area, but perhaps we have a new international
payments mechanism hedging against gold, which is no longer so attractive to many people, and
also foreign exchange, with its greater fluctuations. And more people are turning to copper, lead,
and zinc as a way of protecting themselves in terms of international transactions, as well as
inflation and other things. I think the tremendous pickup in volume in that area is rather
significant.
CHAIRMAN BURNS. Very interesting point. Any other comments on the economy?
Well, we are in position to move ahead, and perhaps we will take a coffee break and resume our
deliberations after.
[Coffee break]
CHAIRMAN BURNS. We are ready to start Mr. Sternlight’s report.

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MR. STERNLIGHT. [Secretary's note: This statement was not found in Committee
records.]
CHAIRMAN BURNS. Thank you, Mr. Sternlight. It’s generally true that the operations
at the [Domestic Trading] Desk are carried out with considerable skill, and I thought that during
this past month it was especially true.
MR. EASTBURN. Peter, I was [unintelligible] pleased to see the analysis in the Bluebook
about the nonborrowed reserves and how they work. Do you have any feeling at this point as to
how realistic the [nonborrowed reserves] simulation is now that you’ve seen this?
MR. STERNLIGHT. Well, we are attempting this simulation according to certain
guidelines that we have set out. The guidelines could be somewhat different. I think it could be
done along the lines that we are describing here, and the general result would be as we have
described for each period, on balance. It seems to me we would have tended to move [more
firmly] on the [federal] funds rate than we actually did and would have had more variation in the
funds rate. I remain doubtful that this would really serve the longer-term purposes of policy, but
it’s still rather early to judge the exercise.
MR. AXILROD. If I may comment on that, Mr. Chairman. As you know, we’re running
at each interval, and the time before this [the simulation implied] somewhat higher [actual than
targeted growth] rates for all reserve measures, and in this case, [a] higher [actual growth rate]
for nonborrowed [reserves] but much lower [ones] for total [reserves and] the base.
The point I’d like to make in addition to those Mr. Sternlight made is, if the Desk had
achieved the [lower] rates two months ago, we have no way of putting into the simulation what
actually could have been the case with regard to deposits in the current period; maybe rates
would have been somewhat [higher], for all I know, or unchanged. It doesn’t necessarily mean
that they’re [lower] and again [lower], because we’re not able to get the feedback effect in.
MR. EASTBURN. May I comment also on that, Mr. Chairman? [Unintelligible,] the
recommendations of the Subcommittee on the Directive, we did, after all, have in there a federal
funds constraint [unintelligible] so that it is a little difficult--in fact, it’s impossible, I guess--in a
simulation, to really tell what would have happened, because if we had a fed funds constraint to
live with [unintelligible] reserve operating target, the outcome that we were talking about
wouldn’t necessarily have to come about. That is, it is not completely clear to me if we would
have greater funds rate variability [with] that nonborrowed reserves target than we do now. Is
that wrong, Peter?
MR. STERNLIGHT. Well, again, I think it depends on what constraints we set ourselves.
We were working with kind of an internal rule that we would not want to see the average funds
rate change by more than 25 basis points per week. We were permitting some backing and
filling of the funds rate as we went through the period on these hypothetical scenarios. If, early
in the period, it looked as though we were going to come out substantially above path, and we
assumed that we would be moving up in the funds rate, and the later evidence had us much
weaker against the path we were assuming, then we would be more generous in the reserve
provision and let the funds rate come down.

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No one can revise those internal rules so as to screen out those short-term residuals. One
could just construct a different exercise than the one we went through, so I think you are right,
we wouldn’t necessarily have had to have greater variability, but I think we would then have
been in a sense less faithful to the attempt to achieve the nonborrowed target.
MR. BALLES. Mr. Chairman, one other observation. I would certainly echo your remark
that the Desk carried out the operations with great skill in this period. I was on the morning call
for a good part of the period since the last meeting. One very definite impression I’m getting as
a result of having paid close attention in this past month to the daily operations, and I would like
to put this especially to Mr. Sternlight, is that the market sometimes overreacts to our direct
purchases or sales in the market as opposed to purchases or sales to and from foreign accounts.
They seem to read into it when we do direct market transactions [unintelligible] move on our part
to change the level of the funds rate.
I wonder if we would get away from this, to some extent at least, if we were targeting on,
say, nonborrowed reserves rather than targeting on the funds rate itself. I think the market is
kind of overshooting in its reactions to your direct operations in the market as opposed to
operations with foreign accounts, and the market, I think, has to look on the defensive
operations.
MR. STERNLIGHT. I think you are certainly right that the market focuses more on overt
operations that they see from us, and it’s natural because that’s what they are seeing directly.
When the weekly statistics are published, they learn that we may have acquired bills from
foreign accounts or sold to them. I’m not sure that there’d be very much difference in that regard
if we were working on a nonborrowed reserve target. It seems to me we’d still be conducting
operations either with overt entries into the market or operations that the market did not see as
directly, and they would very possibly still exaggerate the significance of whatever they saw
overtly from the Desk.
MR. JACKSON. What problems would you have if, when you had mechanical failures
like you had recently, you were operating on nonborrowed reserves versus fed funds. Fed funds
information is something you get externally, whereas the nonborrowed is internally generated.
MR. STERNLIGHT. Well, I think there could be delays in getting the information
together when there were mechanical failures.
CHAIRMAN BURNS. Without implying any preference [unintelligible] operation over
against another, if he had mechanical failures, you’d fall back on the federal funds rate because
you had nothing else.
MR. AXILROD. In addition, Mr. Chairman, a mechanical failure recently did also affect
the fed funds rate because banks didn’t know their position or thought they had the wrong
position, [which] actually caused the fed funds rate to be higher probably than otherwise it would
have been.
CHAIRMAN BURNS. Any other question or comment on the Sternlight report?

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MR. WALLICH. I’d like to hear a little more--the comparative observability of our
objectives under the two techniques--the fed funds rate, how early they can feel us out with
nonborrowed reserves, how early can they figure out what the objectives are.
MR. STERNLIGHT. I think that it is probably easier for the market to try to track us
closely with the fed funds rate objective. That’s something that they can read immediately from
the market just as we can, whereas with a reserve objective, it would be a little more difficult for
them to track us.
MR. MACLAURY. On that same point, I think the answer would obviously depend upon
the extent to which we were prepared to follow the nonborrowed target regardless of day-to-day
variations in the funds rate. The answer you gave, it seems to me, implied that we would
certainly be giving less weight to day-to-day stability of the funds rate and therefore [creating]
greater difficulty in tracking exactly what we had in mind.
I think that likewise has a bearing upon what so-called experts or professionals in the
market can read from early disclosure of our decisions here. Will we be following a
nonborrowed reserves target and allowing the funds rate to move in a wider range than we now
do, day to day? It seems to me [that then] it would be much more difficult for the professionals
to follow what we were doing or benefit or profit thereby even if we were to release our targets
quickly.
SPEAKER(?). I think that’s a good point-CHAIRMAN BURNS. I think these [simulation] operations are useful. If there’s going to
be any change in the method of operating at the Desk, I think we need a little more experience,
and I think the observations that have been made here are helpful to the Committee in thinking
about our method or techniques of operating the Desk, but I don’t think we can decide, or should
try to decide, on a change in operating the Desk at this time. We need a little more time to
observe what has been happening and to study the simulation exercises a little more for a longer
period. If the members of the Committee are ready to change or want to discuss a change now,
of course, we can do that. I doubt that we could-MR. WALLICH. Mr. Chairman, I would think that at most it’s a question of putting the
nonborrowed reserves target where the RPDs [reserves available to support private nonbank
deposits] used to be, in other words as a subsidiary element, not as a change in operating-CHAIRMAN BURNS. Are we ready for that? If we are ready to include nonborrowed
reserves as one of the factors to follow directly in the Desk’s operations, let’s indicate that by a
show of hands. Well, the majority of the Committee clearly wants a little more time to-MR. COLDWELL. I would suggest, Mr. Chairman, it might be helpful, though, for either
the next meeting or the one following, to have a recap of the past four months that we have been
tracking this and where the Desk thinks it might have to come out with these.
CHAIRMAN BURNS. Well, I haven’t kept precise track of the period, but let’s make it a
six-month period.

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MR. WALLICH. May I just verify a point in case I misunderstood it. We can use
nonborrowed reserves in two ways. One is as one of the aggregate targets; that’s what I
understand we discussed tonight. The other is a more ambitious step--to replace the funds rate
by nonborrowed reserves and have the [System Open Account] Manager look at that and not
look at the fed funds. That I would not propose at this time.
CHAIRMAN BURNS. Anything else to be said on that subject? Any further comment on
Mr. Sternlight’s report? If not, a motion to approve operations at the Desk would be in order.
Motion made and seconded.
MR. AXILROD. [Secretary's note: This statement was not found in Committee records.]
CHAIRMAN BURNS. Thank you, Mr. Axilrod. Any questions to Mr. Axilrod?
MR. COLDWELL. Mr. Axilrod, what is there in the situation now that [supports] the
staff’s estimate of strengthening business demand? We haven’t seen this for some time. The
latest figures that I see coming out of the economy [suggest], perhaps, even some slowing in rate
of progress. If we get some continued slowing in retail sales, you have a dampening influence
on inventory accumulation. What is it that brings you to the idea of a stronger business demand
over [unintelligible]?
MR. AXILROD. Well, Governor Coldwell, we do have increased business spending on
capital expenditures in the second half of ’76 compared with the first half of ’76, and we have a
larger increase in inventory accumulation in the second half of ’76 than in the first half. These
are somewhat larger than the increase in internal funds that’s occurring in that period, so on
balance, we have a somewhat greater need for net external financing on the part of nonfinancial
corporations. We believe that virtually all of this additional moderate external financing will
take the form of short-term business loans rather than a further increase in the relatively large
amount of long-term corporate borrowing that has now occurred.
Of course, we could be wrong on several counts. We could be wrong on the added
inventory accumulation or the added spending; we could be wrong on the extent to which
businesses are going [to borrow short term]. We don’t believe they’re going to want to lock
themselves into relatively high long-term rates any more than they are now doing. We may be
wrong on that count, but the increase in business loans that were projected is really rather
moderate, well below the rates of increase of ’73 and ’74. But it does represent a turnaround
from the net declines that we were seeing in the first half of this year.
MR. COLDWELL. If you keep your level of internal cash generation without any increase
but keep the current level of long-term issues, isn’t that going to supply most of what you’re
going to need to meet this inventory and capital expenditure requirement?
MR. AXILROD. Well, as I say, we have some increase in the net external need, so if you
keep the level of bond issues, you need something else to finance the increase in net external
need. We are assuming much of that comes in business loans. In addition, we are permitting
businesses as a group to add a little more to liquid assets, so some of it gets absorbed in the
liquid assets. As a matter of fact, we really are projecting a slight decrease in corporate bond
issues, so it stays pretty high but not a significant [unintelligible].

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CHAIRMAN BURNS. Any other questions? Yes, Mr. Black.
MR. BLACK. Mr. Chairman, Governor Coldwell raised pretty much the sort of question I
had in mind about cash flow and the continued restructuring of debts. I guess I come out with
the belief that short-term rates will go up, but probably not as much as you think, from all that he
indicated, and I was just going to try to elicit the sort of comments you gave him.
MR. AXILROD. Well, President Black, I would be the last person to claim that I feel 100
percent confident that rates will rise as much as we have in alternative B in the Bluebook, and if I
were going to put an error around it, I would put a plus 1/2 on the top and a minus 1 on the
bottom, something like that.
CHAIRMAN BURNS. I think we’d better stop at this point--we might become a little
more precise. Any other question or comment? Yes, Mr. Wallich.
MR. WALLICH. In thinking about rates toward the end of the year, one has to look at the
[unintelligible] levels of M1 and alternatives A, B, and C for early ’77, and those are so low,
ranging from 2.8 under alternative A to 4.0 under C, that one wouldn’t be very surprised to see
those produced [unintelligible]. That’s, of course, the consequence of having moved up much of
our gross leeway in the second quarter.
MR. PARTEE. Well, I think that’s quite right. The staff is caught by the assumption of
policies that they must take. But, as in the first quarter, when we forgave an undershoot, we
might well forgive an overshoot in the second quarter, in which case there would be some relief
in that first-half growth in 1977, which would modify attitudes toward great-MR. WALLICH. Yes, all I’m trying to say is, these projections of high short-term rates
are partly the result of an artificial constraint.
CHAIRMAN BURNS. I think that’s right. Any other comments? Well, if not, we are
ready to turn to our discussion of monetary policy and the kind of directive we want to issue to
the New York Bank.
I think we have a relatively easy job to do this morning. As far as I can see, the economy
is expanding quite satisfactorily. The decline in the rate of growth of real GNP during the
second quarter is, by and large, I think a very healthy development--the continuation of the rate
of growth of 8-3/4 percent would generate boom conditions very quickly.
Now, a good deal has been said this morning about the lull in consumer buying. As all of
us know, during the course of business cycle expansions, lulls of this type are a very frequent
occurrence, and our more recent weekly data on retail sales and on automobile sales suggest that
the lull is just about over. And in any event, there is a significant pickup in activity in the
durable goods sector, and I find the new orders figures very telling, particularly new orders for
business capital goods.
The stock market certainly is reflecting a great deal of continuing and probably expanding
optimism. As for money and interest rates, since mid-April, we’ve had a considerable run-up in
short-term interest rates and a modest run-up in long-term rates. More recently, interest rates in

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the short-term markets have stabilized. The move that we’ve taken, I think, has been a prudent
one, though we have received some criticism; by and large, it has been well absorbed by the
markets, and it has been well received, by and large, as well, by the business and financial
community.
My own feeling is that specifications under alternative B as indicated on page 6 in the
Bluebook are close to the mark. Some stability in money markets is indicated at the present
time. And actually, I would like the fed funds rate specification a little better if it were 5-1/4 to
5-3/4 rather than 5 to 6, but I could go either way.
So as I see it, we are in a period where we ought to mark time, and I don’t think that we
have a very difficult problem to deal with at this meeting. But these are my simple thoughts, so
let’s hear from members of the Committee. Who would like to speak? Yes, Mr. Jackson.
MR. JACKSON. I would generally concur with your comments, even to the [point] that I
wouldn’t object to a money market directive rather than the aggregates directive.
CHAIRMAN BURNS. Mr. Partee.
MR. PARTEE. I would agree with your thrust, too, and I would prefer the 5-1/4 to 5-3/4
funds rate range because it seems to me that, within the range of monetary aggregates that we
have, we shouldn’t be terribly upset by something that leans toward the high end or the low end.
I think I would stay with the monetary aggregate directive but look for greater stability.
The only point that I might just have a little bit of disagreement about is, I would like to be
a little more provisional about the economic outlook. I think it is good. I think that we will
move ahead all right as we go into the summer and early fall. But at the moment, I am a little
troubled about housing and consumer spending. And I think that is a good reason for pausing a
bit in what may very well turn out to be a longer-term record of somewhat firmer rates and
somewhat firmer money market conditions.
MR. JACKSON. I think the money market directive versus a half [percentage point] and a
quarter [percentage point] on either side of the midpoint is in [unintelligible].
MR. PARTEE. Yes.
MR. JACKSON. So I don’t think it’s worth discussing.
MR. PARTEE. Yes.
CHAIRMAN BURNS. Thank you, Mr. Partee. Mr. Mayo now, please.
MR. MAYO. Mr. Chairman, I subscribe to your comments. I think I do prefer the full 5
to 6 range for fed funds with our usual tendency, which would be the same, I suppose, under
both of our prescriptions of leaving it pretty much where it is. But it gives a little more leeway to
the Desk.

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I think I’d like the idea of maybe 3-1/2 to 7-1/2 for M1 as against 4 to 8. I find it a little
more in tune with our longer-term objectives, keeping those in a general subtle tendency perhaps
of a bit lower. I’m thinking also that the results of this meeting will be published very close to
the time you go up to testify before the Banking Committee at the end of July. And not
prejudging where we are going to come out a month from now, I would make a guess that we
probably would not be raising those ranges. Indeed this might be in the right general area, and
although it doesn’t make much substantive difference, it probably would look a little better than
the 4 to 8. M2, I would take 6 to 10.
CHAIRMAN BURNS. One factual point. I have just checked with Mr. Broida, we would
be releasing our policy--what do we call the policy actions?
MR. BROIDA. Policy record.
CHAIRMAN BURNS. --the policy record--on July 23, and the testifying would take place
on July 22.
MR. MAYO. And I would use 6 to 10 for M2, not that that is critical, but I would still pay
a little more attention to M2, as we have the last couple of times. I would lean toward a money
market directive this time, since that is perhaps a better expression of the way [alternative] B is
set up, but I don’t feel strongly about it.
CHAIRMAN BURNS. Thank you, Mr. Mayo. Mr. Eastburn now, please.
MR. EASTBURN. Mr. Chairman, I would go along with your prescription. I think
alternative B as prescribed would be appropriate. I would like to take a second, however, to
revert to the earlier discussion about where we find ourselves with respect to the pattern of
money growth and so on and interest rates.
We have done some exploring with other forecasts, particularly work on DRI and a little
bit with Michigan. And, comparing them with the Greenbook and as far as the real economy is
concerned, the results are pretty much the same for all of those. The interesting thing, however,
is that these private forecasts come to this conclusion with the expectation that M1 will grow
considerably more rapidly in the next three quarters than the Greenbook has projected. It’s
something like 3 to 4 percentage points.
Similarly, these outside forecasters are more optimistic on interest rates. They see a
Treasury bill rate about 1-1/2 to 2 percentage points lower at the year-end than does the
Greenbook. They see interest rates more along the line of what Steve was coming to, interest
rates rising less than the Greenbook would have it.
In other words, what this suggests is that the Greenbook forecast, given those assumptions
with respect to money supply and interest rates, is optimistic. And what this also suggests is that
we may see some long-run implications--particularly next month, when we come to look at the
long-run target--for whether we should reexamine those targets in the light of this, or at least to
forgive the overshoot that we have had in the second quarter.

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This is, I think, a problem in the making which we are going to have to consider. For the
moment, however, I think that things are uncertain, but I would be content to hold where we are
with alternative B.
CHAIRMAN BURNS. Thank you, Mr. Eastburn. Mr. Coldwell now, please.
MR. COLDWELL. Mr. Chairman, I’m delighted to join you in your prescription. I would
also prefer a narrower fed funds rate, mainly because, with those wide margins [unintelligible].
I’d prefer that the money market conditions stay stable and that we take time to pause while we
decide whether this economic lull is going to continue. I don’t see any real evidence yet of a
business loan expansion. I value Steve’s judgment when he tells me that he’s at least partially
convinced that it will occur sometime, and I would agree with that judgment. Someday I think
we will see it, but I don’t see it yet, and I don’t really think it’s necessary that the policy must
take an advance look at it that far down the line.
CHAIRMAN BURNS. Thank you, Mr. Coldwell. Mr. Volcker now, please.
VICE CHAIRMAN VOLCKER. I don’t have any disagreement with the general pattern
of the remarks that have been made, and, too, I’m not terribly concerned over this hesitancy in
the economy, although in our own projections I guess we have it a little greater than the Board’s
staff does.
I do remain concerned over the sluggishness of business investment. As we look ahead,
I’m a little less optimistic than the staff projections there. And I’m also disturbed over the
Gramley view of inflation, which is widely shared I’m sure, but I do think there is some
possibility of making some further progress on inflation as expansion proceeds, and we ought to
do what we can to facilitate it. And that leaves me with somewhat opposite prescriptions of
wanting to boost business investment but at the same time wanting to be very cautious on the
inflationary side, which leaves me right in the middle where the rest of you have been
[unintelligible].
I would be very reluctant, however to see the actual fed funds rate go above 5-3/4 or below
5-1/4, so I’d be perfectly happy with that specification. I do share Mr. Mayo’s feeling that we
would be better off with a 3-1/2 to 7-1/2 percent M1 figure. In addition to the reasons that he
presented, which I think are valid, I would note that in New York, we have a lower projection of
the M1 figure that would be right at the lower end of the 4 to 8 percent range. So I would rather
pick up the [alternative] C specification there of 3-1/2 to 7-1/2 and leave the [alternative] B
specification for the M2 number. But that’s a very small modification of the proposal you made
and is directly in line with Mr. Mayo’s proposal.
CHAIRMAN BURNS. Thank you, Mr. Volcker. Mr. MacLaury now please.
MR. MACLAURY. Thank you, Mr. Chairman. I likewise share what seems to be the
consensus view of the economic outlook. This is just a pause. On the funds rate range, I think
we should be consistent. If we are going to narrow the range to as small as 5-1/4 to 5-3/4, which
I think is reasonable under current conditions, then we ought to use a money market directive
rather than an aggregates directive. I think that’s simply more consistent with the facts. I think

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we are going to end up as Chuck indicated, forgiving or forgetting April’s bulge and not trying to
retrace our steps as we go down the pike, and that would give us some leeway later on.
I think likewise if we are going to use this narrowed range for the funds rate, perhaps
there’s something to be said for what I think was a pattern we set at our last meeting of keeping
our two-month targets consistent with our long-run targets. I like that idea and I would like to
reiterate it at this time, particularly if we are going to use, as I say, the narrower funds range. It
seems to me we can then stick with a narrower and lower money supply target, and I would
simply buy the 4-1/2 to 7 percent range, rather than the 3-1/2 to 7-1/2 percent.
CHAIRMAN BURNS. All right. Thank you, Mr. MacLaury. Who would like to speak
next? Mr. Guffey, then Mr. Morris.
MR. GUFFEY. Well, Mr. Chairman, I agree with the narrowing of the fed funds range. I
guess my principal concern is that we don’t get a turnaround in the aggregates in July, and as a
result I’d like to propose that we drop the top [end] of the 4 to 8 and the 6-1/2 to 10-1/2 a whole
[percentage point] rather than a half . If we are going to go with the money market conditions
directive, if I understand it--and I’m not sure I totally do--but we would basically stay at 5-1/2
even if the aggregates begin coming in, under alternative B, up to 8 percent, and I think that
would be a mistake.
CHAIRMAN BURNS. No, no. Mr. Sternlight, would you explain how you operate at the
Desk in view of our recent practices?
MR. STERNLIGHT. Well, I think we would observe a zone of indifference within which
we would make no reaction but just continue to hold to the middle of a funds range. If it were,
say, 5-1/4, 3/4-CHAIRMAN BURNS. That zone of indifference would not be equal to the full M1 range.
MR. STERNLIGHT. But it would be something within the range [even] if we haven’t
always agreed on just precisely what--how wide that zone is. We tend to think of it [in terms of,]
if the M1 range, say, was 4 percentage points, then perhaps 2 percentage points would be a zone
of indifference. But as we move beyond that then we would move to the higher or lower side of
the funds range.
MR. GUFFEY. If I understand then, at the time you might get around 7 percent under
money market conditions, then you might be moving that fed funds rate up to the 5-3/4-CHAIRMAN BURNS. If it were 4 to 8?
MR. GUFFEY. If we stick with 4 to 8.
CHAIRMAN BURNS. No, I don’t think so.
MR. STERNLIGHT. I don’t think we would go all the way to 5-3/4. We wouldn’t go all
the way to the top of the funds range unless the aggregates were slightly over the top.

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CHAIRMAN BURNS. Or at the top.
MR. STERNLIGHT. Well, all right, at the top.
MR. GUFFEY. Well, I guess you bolster my thought, and I’d like to see the range
narrowed a little, and on the top side principally, a full percentage point under alternative B,
which would bring it to 4 to 7 and 6-1/2 to 9-1/2. Because I’d hate to see us sit at the 5-1/2 level
if we see those aggregates coming in fairly strong. I’d like to see us move on to the 5-3/4.
CHAIRMAN BURNS. Thank you, Mr. Guffey. Mr. Morris?
MR. ROOS. Mr. Chairman, may I just ask a question? Is the significance of the lowering
of the upper end of the fed funds rate from 6 to 5-3/4 the psychological effect that the publication
of 6 versus 5-3/4 would have? In other words, why do we tend to artificially restrict ourselves
from moving 1/4 of a point higher if circumstances in the aggregates dictated our doing that.
Does that have a detrimental or a depressing psychological effect when it’s published? Is that it?
CHAIRMAN BURNS. Well, I think that question is better addressed not to Mr. Sternlight
but to members of the Committee. Let me attempt an answer, and members of the Committee
may wish to comment. As of today, I would like some stability for a little while. The money
markets have stabilized, the monetary growth rates have moderated. I see no clear reason for
moving in one direction or the other.
To move down to as low as 5, well, if the general expectation--and this extends far beyond
our own staff--for some rise in short-term interest is valid--it’s certainly widely held--then to
move down to 5 and then move up again very shortly I think would create unnecessary flurries.
And likewise, to move up to 6, well, there is an element of uncertainty. Mr. Partee underlined it,
Mr. Coldwell did. I did not, but I don’t differ, really, from their views. I doubt whether that is a
wise decision today. Two weeks later, one month later, it may well be.
MR. MACLAURY. Mr. Chairman, isn’t also another point on this, that if we got as high
as 6 with the funds rate, it calls into question the discount rate, which is 5-1/2. I think that
becomes a potentially more pressing issue, and you may or may not want to contemplate a
discrete overt move that would be interpreted as tightening.
CHAIRMAN BURNS. That’s well worth keeping in mind.
MR. PARTEE. We know the [unintelligible] is 5-3/4 as the top in this past intermeeting
period. Is that the point you were making, Larry, that if you put in a higher figure than the 5-3/4,
it would look as if there was some movement that we could make?
MR. ROOS. Yes, that was my question.
CHAIRMAN BURNS. It would be interpreted to indicate some movement toward a
tightening today.
SPEAKER(?). [Unintelligible.]

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CHAIRMAN BURNS. Yes, I do. I think that is a valid observation.
MR. WALLICH. In a general direction, I think we have little choice but to accept the rise
in short-term rates. This lull is perhaps not the best moment to start it, and as a compromise of
these two things, I would go with the 5 to 6 fed funds rate.
I would also like to get back to a narrower aggregates target. We have had this time of
great uncertainty about M1, and it may not be over. But eventually, I think 4 percentage points
will be too wide, and I think this time we could afford to go to 4-1/2 to 7 and thereby match our
long-term target. I have no quarrel with the existing specifications of M2, and I would prefer an
aggregates directive.
CHAIRMAN BURNS. Thank you, Mr. Wallich. Mr. Fossum now, please.
MR. FOSSUM. Mr. Chairman, we group ourselves with those that appraise the national
recovery as still pretty solid and the economic outlook as quite favorable. As evidence of this,
looking at the Sixth District, Florida is the state that had the deepest economic dips during the
recent recession, not only in this-CHAIRMAN BURNS. It’s an interesting comment. Is that the deepest in the country or
[just] in your District?
MR. FOSSUM. Well, [Florida’s recession is the] deepest in our District, and there are
those who would point to it as, if not the deepest in the country, among those. Its recovery is
ahead of what was predicted just a month or two ago. Single-family housing starts and general
employment figures are up in Florida.
We had the responsibility this past month to put together the Redbook, which gave us a
ringside opportunity to watch the response which came in from around the country on the
question of capacity. And while there was considerable variation from area to area, the general
[impression we got] from that is that there is less excess capacity in the economy today than we
would have thought with the-CHAIRMAN BURNS. That’s the way I read the Redbook.
MR. FOSSUM. And while there doesn’t seem to be any great bottleneck in the economy
at the moment, looking on down the pike it would appear that we likely are going to have some
supply problems by, say, mid-1977. And so the way we read it, the issue for monetary policy
seems to be whether we should in fact, as people are saying, get a head start on facing up to the
price pressures that usually accompany those shortages, or growing shortages, or whether to
pause.
And [our conclusion], all things considered, is that the balance of argument favors a pause
at this moment, since the growth in monetary aggregates seems to be moderate. So we would
certainly support your prescription. As far as the ranges are concerned, I would like to see the
fed funds range narrowed to 5-1/4 to 5-3/4 if, in fact, the Desk feels that they can operate within
that range.

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CHAIRMAN BURNS. Thank you, Mr. Fossum. Mr. Baughman now, please.
MR. BAUGHMAN. Mr. Chairman, I think I substantially agree with the thread of
discussion here, but there are a couple of aspects of it that bother me somewhat. I fail to grasp
the reason for the desire that has been expressed to go to the money market condition directive
this time. I just don’t quite grasp the reason why that should prevail.
I generally like the alternative B in terms of quantities, but I would share the view that the
top on a couple of those measures could well come down a bit. And I would be inclined to bring
them down in line, I guess, with the longer-term objective, or target. In particular, looking back
over the past year’s experience, I become pretty well persuaded that an M2 growth rate in excess
of 10 percent is probably not consistent with the move toward economic stability.
As to the range on the fed funds rate, there again, it seems to me that, in the current
circumstances, 5-1/4 to 5-3/4 would certainly take care of the needs that might develop over the
next month. But I don’t really see that we accomplish anything positive by knocking a quarter
off of [the top and adding a quarter to] the bottom a 5 to 6 range. But I could go 5-1/4, 5-3/4,
and in fact, could go with the whole alternative B listing. On M1, I prefer the top to drop to
about 7 and on M2 the top to drop to 10.
CHAIRMAN BURNS. Very good. Thank you, Mr. Baughman. Mr. Balles, next please.
MR. BALLES. Mr. Chairman, as far as the economy is concerned, I share the thought
that’s been expressed by several others around the table that most likely we are just seeing a
pause now and that we will experience, as the year goes on, pretty broadly based, solid, further
growth.
And in that context I share what I think Governor Wallich was saying. Take the Bluebook
forecast of where we might be from an interest rate standpoint under the three alternatives, and I
would prefer to see a little rise in interest rates now rather than a big one later on. And therefore
it would not disturb me to see the fed funds rate climb up to 5-3/4 percent during this
intermeeting period. And given that conclusion, I would lean toward the full 5 to 6 percent range
on the fed funds rate.
With respect to ranges for M1 and M2, I share the view that’s already been expressed by
three to four members that the top end of the short-term range should not exceed the top end of
our longer-term range. We’re already, from the standpoint of the level of the aggregates, over
the rates that we have set out for ourselves in terms of the 12-month target.
In that respect, I would just like to refer briefly to an experimental set of charts that I
distributed last month and again this month to the members of this group, which is an effort to
try to relate our short-term actions to our 12-month target. We set these 12-month targets, as we
all know, to give ourselves a considerable degree of latitude in M1, M2, and M3. They are fairly
wide ranges that allow a good deal of flexibility, as I think is perfectly appropriate. And yet at
the same time, some of us have been making an effort to get a better tracking mechanism on
where we stand on the level of the Ms--through the use of moving averages as, in my view, a
best indicator--in order to get away from a problem you pose, which is 4 equals 8, that is, the
unreliability of any given month’s seasonally adjusted data.

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I think that we have a method for getting around that through the use of this filtering
device of smoothing the data through moving averages. [We use] the Board of Governors’ own
staff forecast of five weeks ahead as to where the Ms are likely to be. And the net of all of that is
charts that I have been using that show that we are above our own range for both M1 and M2.
And I find it difficult, therefore, to support any short-term range which would bring us further
above the upper limit of a longer-term range that we ourselves set.
So that’s my rationale for supporting an upper limit for M1 of 7 percent for the next two
months and an upper limit for M2 of 10 percent. And in fact, if we were to take the next step
that would bring our short-term targets within at least the upper bound of our longer-term targets,
we would have to have a lower limit for M1 of 2 percent for the next two months and a lower
limit for M2 of 5 percent. And if we were to follow those lower limits, that would bring us
barely down to the top end of our longer-term ranges by the end of July.
I think that this Committee is still faced with an unresolved problem of how to limit its
short-term targets for this longer-term range. These charts that I’ve been playing around with are
an effort to do that. I’m not sure we’ll get there right away, but I see an unresolved problem in
[that] we are able to [unintelligible] month by month with what we set out for ourselves as a
[unintelligible] wide range of growth in the aggregates for a 12-month period ahead. And doing
a little forecasting, I suspect that what we’ll end up with next month is to forget the overshoot in
the second quarter. And if we do that without the second quarter as a base for the next 12
months ahead, and even if we were to make no change in the growth rate ranges of both M1 and
M2, we end up with something like $3 billion more of M1 by the first quarter of ’77.
Or, to put it another way, by the time we get to the fourth quarter of this year, if we forget
the second-quarter overshoot, which I’m not opposed to, we would end up with year-to-year
growth of M1 of something like 5.8 percent from the fourth quarter of ’75 [to the] fourth
[quarter of] ’76. Due to your last testimony on our longer-term goals, it seems to me that
5.8 percent in the calendar year of ’76 is a very generous, maybe overly generous, rate of
monetary growth in view of the fact that we have not gotten inflation down as much as I would
like to see it, and [also] in view of my personal hunch that, if anything, the rate of inflation is
going to get somewhat worse rather than better in the months ahead.
CHAIRMAN BURNS. Well, that’s a very interesting comment. I only wish we could
have the time to pursue it. The only comment that I would make is you have been entirely silent
on the velocity factor. [There] has been a change, and the change seems to be the dramatic
increase that we have had over three quarters that isn’t being repeated in the present quarter and
may not be in the succeeding quarters.
MR. BALLES. Well, I think we ought to ask you, as the most successful forecaster of
velocity, Mr. Chairman, what you think is going to happen.
CHAIRMAN BURNS. I don’t think that the level we had in the third and fourth quarters
of last year and the first quarter of this year is going to be repeated. I think we will get a little
lower level.

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MR. MORRIS. Mr. Chairman, Murray Altmann complained to me at the coffee break that
he’s going to have a hard time writing an expanded policy record this time because [there]
wasn’t enough dissent.
CHAIRMAN BURNS. If that is Mr. Altmann’s comment, I don’t think you should take it
too seriously.
MR. MORRIS. I can’t help him this time, I promised in some future date to help him. But
I think at this point I support your thesis that the appropriate policy is a pause, so I therefore
support your narrow range of the funds rate. I would not be concerned to lower the upper ranges
of the aggregates because, if the only long-term objective we’re concerned about is the most
recent one we made, it is true that we are running above that more recent objective, but it’s also
true that we are about in the middle of the objective through the fourth quarter, and we are a little
on the low side of the objective [unintelligible] the third quarter.
Now, all of the discussion seems to be centered around the most recent path, and if this
means that the earlier paths are to be ignored, then in effect we only have a three-month
projection instead of a 12-month projection factor. Seems to me we have to give some concern
to the other objectives and also to the fact that in establishing the most recent path and the
preceding path, we established them in relatively low quarters. So it seems to me that I’m not
concerned about what is called this second quarter bulge. And I’m a little happy, in fact, that we
are going to continue our procedure, [although] I think, sooner or later, it’s going to get us in
trouble projecting 12 months ahead on the most recent quarter regardless of what random
movements may have biased that recent quarter up or down.
CHAIRMAN BURNS. If we think a bias is misleading us, there is a very simple way of
correcting for it and that is to have a lower rate of growth for the next 12 months.
MR. MORRIS. Well, I’m not so sure, Mr. Chairman, that it’s simple from the public
relations point of view. That is, I think it would take a lot of explaining, and a lot of getting the
message across, if we were to come out with the substantially lower rates and adjust
[unintelligible] if we had a higher base. So I’m concerned about the-CHAIRMAN BURNS. We’ll have difficulty either way, I think-MR. MORRIS. --since maybe one of these days, one of these quarters, we are going to run
into a situation where, in order to avoid an excessively rapid or an excessively slow growth in the
money supply, we would have to come out with numbers for the next 12 months which the
public and the press are likely to misinterpret as meaning a radical shifting in policy in one
direction or another. I was talking [about it] to Mr. Partee this morning at breakfast as something
that our Subcommittee on the Directive ought to examine, not in terms of the immediate problem
but in terms of what sorts of situations this might lead us to. That’s all I have to say.
MR. WINN. I have no quarrel with the sense of the discussion, Mr. Chairman, and if we
are right, then the behavior is going to be pretty much on target anyway. But I think if we are
wrong, we ought to consider whether we ought to go to a money market target at this stage
because of the difficulty of extricating ourselves if we are wrong on either side. I would be a lot

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happier to stay with an aggregate target than I would a money market target, even though I have
no desire to do anything but keep a low visibility and hope things will stay about the same.
MR. BLACK. Mr. Chairman, today seems to be a day where an unusually large number of
hybrid policy prescriptions are emerging. I guess mine is of the same variety. I would go for a
full 5 to 6 percent range on fed funds. I feel the economy is probably going to be somewhat
stronger than the staff has projected. The international economy is heating up, and the Puerto
Rico [G-7 summit] meeting may lead to some further tightening of foreign monetary and fiscal
policy, and so I want that full maneuverability.
At the same time, I really don’t believe that the aggregates are going to show quite the
growth that the staff thinks, and I would be a little happier with 3 to 7 percent on M1 and 5 to 9
on M2. And having said this, I would then do about what you recommended originally and keep
the fed funds rate around 5-1/2, unless one or the other of the aggregates starts breaking out on
the top side. This might suggest that I would favor a money market directive, but my prejudices
lie in the other direction, and I would still stick with an aggregates directive.
MR. ROOS. Briefly, if we are going to agree with the wisdom of a policy of temporary
pause, and if we do look ahead to the projections of rates in the 7-1/2 to 8 percent range, fourth
quarter [of 1976], first quarter of ‘77, I think we should be alert to the possible need to gradually
get toward those rate levels. If I had my druthers as a voting member, I would prefer to see us go
to the 6 percent upper limit [on the federal funds rate] even though the Desk did not reach that
level. But we would certainly accept the wisdom for thirty days of sticking to 5-1/4 to 5-3/4.
We would prefer narrower M1 and M2 ranges, reducing the upper limits of each of those
aggregates.
MR. GARDNER. At the start of this meeting I was persuaded that we didn’t have
sufficient cause to go [unintelligible] to alternatives A or C, so I obviously support the pause. I
think the pause is appropriate. I want to comment that we do meet monthly on a regularly
scheduled basis. If we met on a basis related to events in the marketplace, we might not have
had a meeting today. I want to just say that I’m rather pleased that we are in a position where we
can pause to some extent.
I think we started a process earlier to build a little bit of stiffening in the rates. At this
point it seems to me that the evidence is unclear and that we don’t have sufficient cause to make
important changes. I’m impressed [by the proposal to pause] because of the propensity of human
beings to act when they come together. So far we have a general consensus of not much action.
I would make one plea. I’m very sensitive to the fed funds rate because, in the banking
world, these rates result from the interactions and expectations of many people in the money
market, whereas your aggregates are published as statistical facts. I would therefore urge on the
Committee that we do narrow the range. I think a 6 percent fed funds rate during a pause would
be a mistake. I think we should perhaps consider this again as events move on in the economy.
So I would vote strongly for 5-1/4 to 5-3/4, narrowing the fed funds range.
CHAIRMAN BURNS. I think we have had a useful discussion. There are differences
among us that I think are at the margin. I think we could start, perhaps, with the fed funds range.

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There is some margin within the Committee in favor of a 5-1/4 to 5-3/4 range, but let’s test that
with a show of hands from the members of the Committee [to see whether] that range will be
generally acceptable [if] not necessarily preferred. And then we can test another range, a wider
range, if that is the Committee’s wish. All those who can be relatively comfortable with a range
of 5-1/4 to 5-3/4 for the fed funds rate range will kindly indicate that by raising your hands.
MR. BROIDA. Eight, Mr. Chairman.
CHAIRMAN BURNS. Would you want that tested? No strong wish as to the range for
M1. I think that, on the basis of the record before me, a range of 4 to 8 seems to be preferred by
a thin majority of the Committee. I think there is a good case to be made for 3-1/2 to 7-1/2 and
that might be a compromise for the views expressed all around the table. Let’s choose between
the two. Those who prefer 4 to 8 as over against 3-1/2 to 7-1/2, would you kindly raise your
hands. Three.
Now let’s see if our arithmetic is correct. Those who prefer 3-1/2 to 7-1/2 as over against
4 to 8, would you kindly raise your hands. Eight.
I think that implies that M2 would be 6 to 10 rather than 6-1/2 to 10-1/2.
Now there is a question about the directive. Now logic is something to be recognized but
not always to be effected. Logically we have the money market directive if we go with a 5-1/4 to
5-3/4 percent range. But as I say, logic is not and should not always be respected in life. Let us
have a show of hands. Those who prefer a money market directive and the language of the
money market directive which reads, “The Committee seeks to maintain prevailing bank reserves
and money market conditions over a period ahead, etc.”
Now those who would prefer a money market directive as over against the monetary
aggregates directive will kindly raise their hands. Three.
It’s reasonably clear that the monetary aggregate directive will express the sentiment of the
majority somewhat better, and I prefer it myself, even though logic is thrown to the wind.
MR. JACKSON. Chairman, nobody discussed relative weights of the [M1 and M2]
aggregates and-CHAIRMAN BURNS. We were proceeding in this meeting on the principle of assigning
approximately equal weights for the two.
MR. JACKSON. It appears from staff projections that the behavior in the savings deposit
market would be different from expectations, that it may be more different to date, and I would
personally be inclined to shade emphasis on M2 somewhat compared to 50-50.
CHAIRMAN BURNS. Any view on that?
MR. AXILROD. Mr. Chairman, the savings deposits, the other time deposits, did behave
in a sense a little differently than we had for these particular M1s--they remained relatively
stronger. But the savings deposit actually behaved about as we had thought, and there was an

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outflow, and what didn’t behave as we had thought was the other time deposits that we’re
offsetting. And I would tend to agree that when you are in a period here of interest rates having
moved above Regulation Q ceilings, you get uncertainties on deposit flows, and that puts a little
more uncertainty on M2 and M1, but it’s a marginal matter.
SPEAKER(?). I think we may have accomplished my result whether we changed the
directive or not.
CHAIRMAN BURNS. I have not observed any degree of uncertainty with regard to
projections of M1.
MR. PARTEE. I just wanted to point out a small arithmetic fact, and that is that saying
equal emphasis on M1 and M2 approximately means that in fact you place about 3/4 emphasis
on M1 because M1 is contained in M2, which is plenty for me.
CHAIRMAN BURNS. Any sentiment to move away from the approximate equality?
Apparently there is no such sentiment.
I think we are ready for a vote, and we’ll be voting on the following: a monetary
aggregates directive; a range for M1 at 3-1/2 to 7-1/2; a range for M2 of 6 to 10; a range for the
federal funds rate at 5-1/4 to 5-3/4; and understanding that M1 and M2 will receive
approximately equal weight at the Desk. Any questions? We are ready for the vote.
MR. BROIDA.
Chairman Burns
Vice Chairman Volcker
President Balles
President Baughman
President Black
Governor Coldwell
Governor Gardner
Governor Jackson
Governor Lilly
Governor Partee
Governor Wallich
Governor Winn

Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes

Unanimous.
MR. BAUGHMAN. Mr. Chairman, can I raise a very small point?
CHAIRMAN BURNS. Small or large.
MR. BAUGHMAN. For some period of time it has bothered me that we have described
the rate of change in wage rates as moderate or something that is sort of vague. And it appears
again in the general paragraph of line 16.

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CHAIRMAN BURNS. Well, I think that, I must confess I’ve gotten into the habit of
having so much to do that I have paid very little attention to the general paragraphs--I think you
are right. It can be interpreted as a blessing by us. I would just omit the word and have it read,
“the advance in the index of average wage rates was larger in May than the gains in other recent
months,” and so on. I don’t think we ought to bless it by characterizing it one way or the other.
MR. BAUGHMAN. It’s quite inconsistent with the achievement of economic stability.
CHAIRMAN BURNS. Well, I think that point is very well taken. Any objection to
deleting the word moderate on 16?
MR. VOLCKER. I think it is a good idea.
MR. PARTEE. I do also think, Mr. Chairman, that we ought to ask the staff to insert a
reference to the CPI.
CHAIRMAN BURNS. Well, I think that’s a very good observation. All right, our staff
will do that.
Let’s turn to item 6, and this arises because of Mr. Holland’s resignation. If it’s
satisfactory to the Committee, I would suggest that the responsibility previously borne by Mr.
Holland now be assumed by Governor Gardner and in his absence by Governor Coldwell. Any
objections to that? All right.
Now, item 7 may or may not evoke a debate. There is one reason--quite apart from the
factor of time--for delaying it, and that is that Mr. Holmes is absent. All right, we simply have to
confirm the date for the next meeting, and I take it there is no question involving that, and
therefore we conclude our meeting at a very early hour.
SPEAKER(?). Could we note for the record that we started at 9:30 this morning and had
an executive session, and nevertheless we ended at 1 p.m.
END OF MEETING