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Meeting of Federal Open Market Committee
March 15,
1977
MINUTES OF ACTIONS
A meeting of the Federal Open Committee was held
in the offices of the Board of Governors of the Federal
Reserve System in Washington, D. C.,
on Tuesday, March 15,
1977, beginning at 9:30 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Burns, Chairman
Volcker, Vice Chairman
Coldwell
Gardner
Guffey
Jackson
Lilly
Mayo
Morris
Partee
Roos
Mr. Wallich
Messrs. Balles, Baughman, Eastburn, and Winn,
Alternate Members of the Federal Open
Market Committee
Messrs. Black and Kimbrel, Presidents of the
Federal Reserve Banks of Richmond and
Altanta, respectively
Mr. Broida, Secretary
Mr. Altmann, Deputy Secretary
Mr. Bernard, Assistant Secretary
Mr. O'Connell, General Counsel
Mr. Axilrod, Economist
Messrs. Balbach, T. Davis, Ettin,
Kichline, Reynolds, Scheld,
Truman, and Zeisel, Associate
Economists
3/15/77
- 2 Mr. Holmes, Manager System Open Market
Account
Mr. Pardee, Deputy Manager for Foreign
Operations
Mr. Sternlight, Deputy Manager for
Domestic Operations
Mr. Hudson, Assistant to the Chairman,
Board of Governors
Messrs. Coyne and Keir, Assistants to
the Board of Governors
Mrs. Farar, Economist, Open Market
Secretariat, Board of Governors
Mrs. Deck, Staff Assistant, Open Market
Secretariat, Board of Governors
Mr. Van Nice, First Vice President,
Federal Reserve Bank of Minneapolis
Messrs. Boehne, Davis, and Parthemos,
Senior Vice Presidents, Federal
Reserve Banks of Philadelphia,
Cleveland, and Richmond,
respectively
Messrs. Brandt, Burns, Fieleke, Fousek,
and Keran, Vice Presidents, Federal
Reserve Banks of Atlanta, Dallas,
Boston, New York, and San Francisco
respectively
Mr. Kareken, Economic Adviser, Federal
Reserve Bank of Minneapolis
Mr. Meek, Monetary Adviser, Federal
Reserve Bank of New York
In the agenda for this meeting, it was reported
that advices of the election of the following members and
alternate members of the Federal Open Market Committee for
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3/15/77
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the year commencing March 1, 1977, had been received by the
Secretary and the named individuals had executed their
oaths of office.
The elected members and alternate members were
as follows:
Frank E. Morris, President of the Federal Reserve Bank of
Boston, with David P. Eastburn, President of the
Federal Reserve Bank of Philadelphia, as alternate;
Paul A. Volcker, President of the Federal Reserve Bank of
New York, with Thomas M. Timlen, First Vice President
of the Federal Reserve Bank of New York, as alternate;
Robert P. Mayo, President of the Federal Reserve Bank of
Chicago, with Willis J. Winn, President of the Federal
Reserve Bank of Cleveland, as alternate;
Lawrence K. Roos, President of the Federal Reserve Bank of
St. Louis, with Ernest T. Baughman, President of the
Federal Reserve Bank of Dallas, as alternate;
James R. Guffey, President of the Federal Reserve Bank of
Kansas City, with John J. Balles, President of the
the Federal Reserve Bank of San Francisco, as alternate.
By unanimous vote, the following officers of the
Federal Open Market Committee were elected to serve until
the election of their successors at the first meeting of
the Committee after February 28, 1978, with the understanding
that in the event of the discontinuance of their official
connection with the Board of Governors or with a Federal
Reserve Bank, as the case might be, they would cease to
have any official connnection with the Federal Open Market
Committee:
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3/15/77
Arthur F. Burns
Paul A. Volcker
Chairman
Vice Chairman
Arthur L. Broida
Murray Altmann
Normand R. V. Bernard
Thomas J. O'Connell
Edward G. Guy
Baldwin B. Tuttle
Stephen H. Axilrod
Secretary
Deputy Secretary
Assistant Secretary
General Counsel
Deputy General Counsel
Assistant General Counsel
Economist
Anatol Balbach, Richard G.
Davis, Thomas Davis, Robert
Eisenmenger, Edward Ettin,
James L. Kichline, Karl
Scheld, John E. Reynolds,
Edward M. Truman, Joseph
S. Zeisel
Associate Economists
By unanimous vote, the Federal Reserve Bank of
New York was selected to execute transactions for the
System Open Market Account until the adjournment of the
first meeting of the Federal Open Market Committee after
February 28, 1978.
By unanimous vote, Alan R.
Holmes, Peter D.
Sternlight, and Scott E. Pardee were selected to serve at
the pleasure of the Committee in the capacities of Manager
of the System Open Market Account, Deputy Manager for
Domestic Operations, and Deputy Manager for Foreign Oper
ations, respectively, on the understanding that their
selection was subject to their being satisfactory to the
Federal Reserve Bank of New York.
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3/15/77
Secretary's note: Advice was subsequently
received that the selections indicated above
were satisfactory to the Federal Reserve
Bank of New York.
By unanimous vote, the minutes of actions taken
at the meeting of the Federal Open Market Committee held
on February 15, 1977, were approved.
By unanimous vote, System open market transactions
in foreign currencies during the period February 15 through
March 14, 1977, were approved, ratified, and confirmed.
By unanimous vote, System open market transactions
in Government securities, agency obligations, and bankers'
acceptances during the period February 15 through March 14,
1977, were approved, ratified, and confirmed.
By unanimous vote, the Federal Reserve Bank of
New York was authorized and directed, until otherwise
directed by the Committee, to execute transactions in the
System Account in accordance with the following domestic
policy directive:
The information reviewed at this meeting
suggests that growth in real output of goods
and services has increased in the current
quarter from the reduced pace in the fourth
quarter of 1976. In February industrial
output and retail sales expanded substantially
after being held down for a time by the effects
of unusually severe weather. Employment rose
considerably further; the unemployment rate
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increased somewhat to 7.5 per cent--as the
labor force more than recovered the decline
of January--but it remained below the 7.8
per cent of December. The wholesale price
index for all commodities rose substantially
in February, reflecting large increases
for farm products and foods and for fuels
and power. The index of average wage rates
rose more moderately over the first 2 months
of 1977 than it had on the average during
1976.
The average value of the dollar against
leading foreign currencies has changed little
In January the U. S.
over the past month.
foreign trade deficit increased further;
exports were down a little from the fourth
quarter rate and imports were substantially
higher.
Growth in M-1 slowed sharply in February
At banks
from the moderate pace in January.
and thrift institutions, inflows of time
and savings deposits other than large
denomination CD's continued to slacken.
Business demands for short-term credit appear
to have strengthened further in early 1977.
Since mid-Februay short-term market interest
rates have changed little on balance, but most
longer-term rates have edged higher.
In light of the foregoing developments,
it is the policy of the Federal Open Market
Committee to foster bank reserve and other
financial conditions that will encourage
continued economic expansion, while resisting
inflationary pressures and contributing to a
sustainable pattern of international trans
actions.
At its meeting on January 18, 1977, the
Committee agreed that growth of M-1, M-2, and
M-3 within ranges of 4-1/2 to 6-1/2 per cent,
7 to 10 per cent, and 8-1/2 to 11-1/2 per cent,
respectively, from the fourth quarter of 1976
to the fourth quarter of 1977 appears to
be consistent with these objectives.
3/15/77
- 7 These ranges are subject to reconsideration
at any time as conditions warrant.
The Committee seeks to encourage near
term rates of growth in M-1 and M-2 on a
path believed to be reasonably consistent
with the longer-run ranges for monetary
aggregates cited in the preceding paragraph.
Specifically, at present, it expects the
annual growth rates over the March-April
period to be within the ranges of 4-1/2 to
8-1/2 per cent for M-1 and 7 to 11 per cent
In the judgment of the Committee
for M-2.
such growth rates are likely to be associ
ated with a weekly average Federal funds rate
of about 4-5/8 to 4-3/4 per cent.
If,
giving approximately equal weight to M-1
and M-2, it appears that growth rates over
the 2-month period will deviate significantly
from the mid-points of the indicated ranges,
the operational objective for the Federal
funds rate shall be modified in an orderly
fashion within a range of 4-1/4 to 5-1/4
per cent.
If it appears during the period before
the next meeting that the operating con
straints specified above are proving to be
significantly inconsistent, the Manager is
promptly to notify the Chairman who will
then decide whether the situation calls for
supplementary instructions from the Committee.
Consideration was then given to the continuing
authorizations of the Committee, in accordance with the
customary practice of reviewing such matters at the first
meeting in March of every year.
Secretary's note:
On February 25, 1977,
certain continuing authorizations of the
Committee, listed below, had been distributed
by the Secretary with the advice that, in
accordance with procedures approved by the
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3/15/77
Committee, they were being called to the
Committee's attention before the March
organization meeting to give members an
opportunity to raise any questions they
had concerning them. Members were asked
to so indicate if they wished to have any of
the authorizations in question placed on the
agenda for consideration at this meeting,
and no such requests were received.
The authorizations in question were as follows:
1.
Procedures for allocation of securities
in the System Open Market Account.
2.
List of Treasury Department officials to
whom weekly reports on open market
operations may be sent.
3.
Authority for the Chairman to appoint a
Federal Reserve Bank as agent to operate
the System Account in case the New York
Bank is unable to function.
4.
Resolutions providing for continued
operation of the Committee and for certain
actions by the Reserve Banks during an
emergency.
5.
Resolution relating to examinations of
the System Open Market Account.
6.
Guidelines for the conduct of System opera
tions in Federal agency issues.
7.
Regulation relating to Open Market Opera
tions of Federal Reserve Banks.
8.
Rules of Organization, Rules Regarding
Availability of Information, and Rules of
Procedure.
It was agreed that the authorization for the lending
of Government securities from the System Open Market Account,
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3/15/77
9 -
contained in paragraph 3 of the Authorization for Domestic
Open Market Operations, should be retained at this time,
subject to annual review.
By unanimous vote, paragraph 1(b) of the Authori
zation for Domestic Open Market Operations, relating to
outright purchases and sales of bankers' acceptances, was
amended, effective
immediately, by adding the words "when
appropriate" at the beginning of the paragraph and by reducing
the dollar limit on holdings, specified at the end of the
paragraph, from $1 billion to $100 million.
In connection with this action, it was understood
that present outright holdings of bankers' acceptances would
be allowed to mature without replacement and that, while
this process was under way, actual holdings would exceed the
newly established limit of $100 million for a few months.
By unanimous vote, the paragraphs of the Authori
zation for Domestic Open Market Operations not affected by
the preceding actions were reaffirmed.
Reflecting the
amendment to paragraph 1(b), the authorization reads as
follows:
3/15/77
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AUTHORIZATION FOR DOMESTIC OPEN MARKET OPERATIONS
1.
The Federal Open Market Committee authorizes and directs
the Federal Reserve Bank of New York, to the extent
necessary to carry out the most recent domestic policy
directive adopted at a meeting of the Committee:
(a) To buy or sell U. S. Government securities,
including securities of the Federal Financing Bank, and
securities that are direct obligations of, or fully
guaranteed as to principal and interest by, any agency
of the United States in the open market, from or to
securities dealers and foreign and international accounts
maintained at the Federal Reserve Bank of New York, on
a cash, regular, or deferred delivery basis, for the
System Open Market Account at market prices and, for such
Account, to exchange maturing U. S. Government and
Federal agency securities with the Treasury or the
individual agencies or to allow them to mature without
replacement; provided that the aggregate amount of U. S.
Government and Federal agency securities held in such
Account (including forward commitments) at the close of
business on the day of a meeting of the Committee at which
action is taken with respect to a domestic policy directive
shall not be increased or decreased by more than $3.0
billion during the period commencing with the opening of
business on the day following such meeting and ending
with the close of business on the day of the next such
meeting;
(b) When appropriate, to buy or sell in the open
market, from or to acceptance dealers and foreign accounts
maintained at the Federal Reserve Bank of New York, on a
cash, regular, or deferred delivery basis, for the account
of the Federal Reserve Bank of New York at market discount
rates, prime bankers' acceptances with maturities of up to
nine months at the time of acceptance that (1) arise out
of the current shipment of goods between countries or
within the United States, or (2) arise out of the storage
within the United States of goods under contract of sale
or expected to move into the channels of trade within a
reasonable time and that are secured throughout their life
by a warehouse receipt or similar document conveying title
to the underlying goods; provided that the aggregate
amount of bankers' acceptances held at any one time shall
not exceed $100 million;
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To buy U. S. Government securities, obligations
(c)
that are direct obligations of, or fully guaranteed as
to principal and interest by, any agency of the United
States, and prime bankers' acceptances of the types
authorized for purchase under 1(b) above, from dealers
for the account of the Federal Reserve Bank of New York
under agreements for repurchase of such securities,
obligations, or acceptances in 15 calendar days or less,
at rates that, unless otherwise expressly authorized by
the Committee, shall be determined by competitive bidding,
after applying reasonable limitations on the volume of
agreements with individual dealers; provided that in the
event Government securities or agency issues covered by
any such agreement are not repurchased by the dealer
pursuant to the agreement or a renewal thereof, they
shall be sold in the market or transferred to the System
Open Market Account; and provided further that in the
event bankers' acceptances covered by any such agreement
are not repurchased by the seller, they shall continue
to be held by the Federal Reserve Bank or shall be sold
in the open market.
2.
The Federal Open Market Committee authorizes and directs
the Federal Reserve Bank of New York, or,under special
circumstances, such as when the New York Reserve Bank is
closed, any other Federal Reserve Bank, to purchase
directly from the Treasury for its own account (with
discretion, in cases where it seems desirable, to issue
participations to one or more Federal Reserve Banks)
such amounts of special short-term certificates of
indebtedness as may be necessary from time to time for
the temporary accommodation of the Treasury; provided
that the rate charged on such certificates shall be a
rate 1/4 of 1 per cent below the discount rate of the
Federal Reserve Bank of New York at the time of such
purchases, and provided further that the total amount
of such certificates held at any one time by the Federal
Reserve Banks shall not exceed $2 billion.
3.
In order to insure the effective conduct of open market
operations, the Federal Open Market Committee authorizes
and directs the Federal Reserve Banks to lend U. S.
Government securities held in the System Open Market
Account to Government securities dealers and to banks
participating in Government securities clearing arrange
ments conducted through a Federal Reserve Bank, under
such instructions as the Committee may specify from
time to time.
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By unanimous vote, the Authorization for Foreign
Currency Operations shown below was reaffirmed:
AUTHORIZATION FOR FOREIGN CURRENCY OPERATIONS
1. The Federal Open Market Committee authorizes
and directs the Federal Reserve Bank of New York, for
System Open Market Account, to the extent necessary
to carry out the Committee's foreign currency directive
and express authorizations by the Committee pursuant
thereto, and in conformity with such procedural instructions
as the Committee may issue from time to time:
A. To purchase and sell the following foreign
currencies in the form of cable transfers through
spot or forward transactions on the open market at
home and abroad, including transactions with the
U.S. Exchange Stabilization Fund established by
Section 10 of the Gold Reserve Act of 1934, with
foreign monetary authorities, with the Bank
for International Settlements, and with other
international financial institutions:
Austrian schillings
Belgian francs
Canadian dollars
Danish kroner
Pounds sterling
French francs
German marks
Italian lire
Japanese yen
Mexican pesos
Netherlands guilders
Norwegian kroner
Swedish kronor
Swiss francs
3/15/77
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B. To hold balances of, and to have
outstanding forward contracts to receive
or to deliver, the foreign currencies listed
in paragraph A above.
C. To draw foreign currencies and to permit
foreign banks to draw dollars under the
reciprocal currency arrangements listed
in paragraph 2 below, provided that drawings
by either party to any such arrangement
shall be fully liquidated within 12 months
after any amount outstanding at that time was
first drawn, unless the Committee, because
of exceptional circumstances, specifically
authorizes a delay.
D. To maintain an over-all open position
in all foreign currencies not exceeding
$1.0 billion, unless a larger position is
expressly authorized by the Committee.
For this purpose, the over-all open position
in all foreign currencies is defined as the
sum (disregarding signs) of open positions
in each currency. The open position in a
single foreign currency is defined as holdings
of balances in that currency, plus outstanding
contracts for future receipt, minus outstand
ing contracts for future delivery of that
currency, i. e., as the sum of these elements
with due regard to sign.
2. The Federal Open Market Committee directs the Federal
Reserve Bank of New York to maintain reciprocal currency
arrangements ("swap" arrangements) for the System Open
Market Account for periods up to a maximum of 12 months
with the following foreign banks, which are among those
designated by the Board of Governors of the Federal
Reserve System under Section 214.5 of Regulation N,
Relations with Foreign Banks and Bankers, and with the
approval of the Committee to renew such arrangements
on maturity:
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3/15/77
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Foreign bank
Austrian National Bank
National Bank of Belgium
Bank of Canada
National Bank of Denmark
Bank of England
Bank of France
German Federal Bank
Bank of Italy
Bank of Japan
Bank of Mexico
Netherlands Bank
Bank of Norway
Bank of Sweden
Swiss National Bank
Bank for International
Settlements:
Dollars against Swiss francs
Dollars against authorized
European currencies other
than Swiss francs
Amount of
arrangement
(Millions of
dollars equivalent)
250
1,000
2,000
250
3,000
2,000
2,000
3,000
2,000
360
500
250
300
1,400
600
1, 250
Any changes in the terms of existing swap arrangements, and
the proposed terms of any new arrangements that may be
authorized, shall be referred for review and approval to the
Committee.
3. Currencies to be used for liquidation of System swap
commitments may be purchased from the foreign central
bank drawn on, at the same exchange rate as that employed
in the drawing to be liquidated. Apart from any such
purchases at the rate of the drawing, all transactions in foreign
currencies undertaken under paragraph 1(A) above shall,
unless otherwise expressly authorized by the Committee, be
at prevailing market rates.
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4. It shall be the normal practice to arrange with foreign
central banks for the coordination of foreign currency trans
actions. In making operating arrangements with foreign
central banks on System holdings of foreign currencies, the
Federal Reserve Bank of New York shall not commit itself
to maintain any specific balance, unless authorized by the
Federal Open Market Committee. Any agreements or
understandings concerning the administration of the accounts
maintained by the Federal Reserve Bank of New York with
the foreign banks designated by the Board of Governors
under Section 214. 5 of Regulation N shall be referred for
review and approval to the Committee.
5. Foreign currency holdings shall be invested insofar as
practicable, considering needs for minimum working balances.
Such investments shall be in accordance with Section 14(e) of
the Federal Reserve Act.
6. All operations undertaken pursuant to the preceding
paragraphs shall be reported daily to the Foreign Currency
Subcommittee. The Foreign Currency Subcommittee consists
of the Chairman and Vice Chairman of the Committee, the Vice
Chairman of the Board of Governors, and such other member
of the Board as the Chairman may designate (or in the absence
of members of the Board serving on the Subcommittee, other
Board Members designated by the Chairman as alternates, and
in the absence of the Vice Chairman of the Committee, his
alternate). Meetings of the Subcommittee shall be called
at the request of any member, or at the request of the Manager,
for the purposes of reviewing recent or contemplated operations
and of consulting with the Manager on other matters relating
to his responsibilities. At the request of any member of the
Subcommittee, questions arising from such reviews and
consultations shall be referred for determination to the
Federal Open Market Committee.
7.
The Chairman is authorized:
A. With the approval of the Committee, to
enter into any needed agreement or under
standing with the Secretary of the Treasury
about the division of responsibility for foreign
currency operations between the System and
the Treasury;
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B. To keep the Secretary of the Treasury fully
advised concerning System foreign currency
operations, and to consult with the Secretary on
policy matters relating to foreign currency
operations;
C. From time to time, to transmit appropriate
reports and information to the National
Advisory Council on International Monetary
and Financial Policies.
8. Staff officers of the Committee are authorized to
transmit pertinent information on System foreign currency
operations to appropriate officials of the Treasury
Department.
9. All Federal Reserve Banks shall participate in the
foreign currency operations for System Account in
accordance with paragraph 3 G(1) of the Board of
Governors' Statement of Procedure with Respect to
Foreign Relationships of Federal Reserve Banks dated
January 1, 1944.
By unanimous vote, the Foreign Currency Directive
shown below was reaffirmed:
FOREIGN CURRENCY DIRECTIVE
1. System operations in foreign currencies shall generally
be directed at countering disorderly market conditions,
provided that market exchange rates for the U.S. dollar
reflect actions and behavior consistent with the proposed
IMF Article IV, Section 1.
2.
To achieve this end the System shall:
A. Undertake spot and forward purchases and
sales of foreign exchange.
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3/15/77
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B. Maintain reciprocal currency ("swap")
arrangements with selected foreign central
banks and with the Bank for International
Settlements.
C. Cooperate in other respects with central
banks of other countries and with international
monetary institutions.
3.
Transactions may also be undertaken:
A. To adjust System balances in light of
probable future needs for currencies.
B. To provide means for meeting System
and Treasury commitments in particular
currencies, and to facilitate operations
of the Exchange Stabilization Fund.
C. For such other purposes as may be expressly
authorized by the Commttee.
4.
System foreign currency operations shall be conducted:
A. In close and continuous consultation and
cooperation with the United States Treasury;
B. In cooperation, as appropriate, with
foreign monetary authorities; and
C. In a manner consistent with the obligations of
the United States in the International Monetary
Fund regarding exchange arrangements under the
proposed IMF Article IV.
By unanimous vote,
shown below were reaffirmed:
the Procedural
Instructions
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PROCEDURAL INSTRUCTIONS
In conducting operations pursuant to the authorization
and direction of the Federal Open Market Committee as set
forth in the Authorization for Foreign Currency Operations
and the Foreign Currency Directive, the Federal Reserve
Bank of New York, through the Manager of the System Open
Market Account, shall be guided by the following procedural
understandings with respect to consultations and clearance
with the Committee, the Foreign Currency Subcommittee,
and the Chairman of the Committee. All operations
undertaken pursuant to such clearances shall be reported
promptly to the Committee.
1. The Manager shall clear with the Subcommittee (or with
the Chairman, if the Chairman believes that consultation
with the Subcommittee is not feasible in the time available):
A. Any transaction which would result in a change
in the System's over-all open position in foreign
currencies exceeding $100 million on any day or
$300 million since the most recent regular meeting
of the Committee.
B. Any transaction which would result in gross
transactions (excluding swap drawings and repayments)
in a single foreign currency exceeding $100 million on
any day or $300 million since the most recent regular
meeting of the Committee.
C. Any swap drawing proposed by a foreign bank
not exceeding the larger of (i) $200 million or (ii)
15 per cent of the size of the swap arrangement.
2. The Manager shall clear with the Committee (or with
the Subcommittee, if the Subcommittee believes that
consultation with the full Committee is not feasible in the
time available, or with the Chairman, if the Chairman
believes that consultation with the Subcommittee is not
feasible in the time available):
A. Any transaction which would result in a
change in the System's over-all open position in
foreign currencies exceeding $500 million since
the most recent regular meeting of the Committee.
B.
Any swap drawing proposed by a foreign
bank exceeding the larger of (i) $200 million or
(ii) 15 per cent of the size of the swap arrangement.
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3/15/77
3. The Manager shall also consult with the Subcommittee
or the Chairman about proposed swap drawings by the System,
and about any transactions that are not of a routine character.
By unanimous vote,
the Special Authorization shown
below was reaffirmed:
SPECIAL AUTHORIZATION UNDER PARAGRAPH 1 (D) OF
AUTHORIZATION FOR FOREIGN CURRENCY OPERATIONS
The Federal Open Market Commitee authorizes the Federal
Reserve Bank of New York to maintain an over-all open position in
foreign currencies exceeding the figure of $1 billion specified in
paragraph 1(D) of the Authorization for Foreign Currency Operations by
an amount equal to the remaining forward commitment associated with
the System's outstanding 1971 swap drawings in Swiss francs.
It was agreed that the next meeting of the
Committee would be held on Tuesday, April 19, 1977, beginning
at 9:30 a.m.
The meeting adjourned.
Secretary
@FedFRASER