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Meeting of Federal Open Market Committee
March 18, 1975
MINUTES OF ACTIONS
A meeting of the Federal Open Market Committee was held
in the offices of the Board of Governors of the Federal Reserve
System in Washington, D.C.,
on Tuesday, March 18,
1975,
at
9:30 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Burns, Chairman
Hayes, Vice Chairman
Baughman
Bucher
Coldwell
Eastburn
Holland
MacLaury
Mayo
Mitchell
Sheehan
Wallich
Messrs. Balles, Black, Francis, and Winn,
Alternate Members of the Federal Open
Market Committee
Messrs. Clay, Kimbrel, and Morris,
Presidents of the Federal Reserve
Banks of Kansas City, Atlanta, and
Boston, respectively
Mr. Broida, Secretary
Mr. Altmann, Deputy Secretary
Mr. Bernard, Assistant Secretary
Mr. O'Connell, General Counsel
Mr. Partee, Senior Economist
Mr. Axilrod, Economist (Domestic Finance)
Mr. Gramley, Economist (Domestic Business)
Mr. Solomon, Economist (International Finance)
Messrs. Boehne, Bryant, Chase, Davis, Green,
Kareken, Pierce, Reynolds, and Scheld,
Associate Economists
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Mr. Holmes, Manager, System Open Market Account
Mr. Sternlight, Deputy Manager for Domestic
Operations
Mr. Pardee, Deputy Manager for Foreign
Operations
Mr. Coyne, Assistant to the Board of
Governors
Mr. Keir, Adviser, Division of Research and
Statistics, Board of Governors
Mrs. Farar, Economist, Division of Research and
Statistics, Board of Governors
Mrs. Ferrell, Open Market Secretariat
Assistant, Board of Governors
Messrs. Eisenmenger, Parthemos, Jordan, and
Doll, Senior Vice Presidents, Federal
Reserve Banks of Boston, Richmond, St.
Louis, and Kansas City, respectively
Messrs. Hocter and Brandt, Vice Presidents,
Federal Reserve Banks of Cleveland and
Atlanta
Mr. Keran, Director of Research, Federal
Reserve Bank of San Francisco
Mr. Sandberg, Assistant Vice President,
Federal Reserve Bank of New York
The Secretary reported that advices had been received of
the election by the Federal Reserve Banks of members and alternate
members of the Federal Open Market Committee for the term of one
year beginning March 1,
1975; that it appeared that such persons
were legally qualified to serve; and that they had executed their
oaths of office.
The elected members and alternates were as follows:
3/18/75
David P. Eastburn, President of the Federal Reserve Bank of
Philadelphia, with Robert P. Black, President of the
Federal Reserve Bank of Richmond, as alternate;
Alfred Hayes, President of the Federal Reserve Bank of
New York, with Richard A. Debs, 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;
Ernest T. Baughman, President of the Federal Reserve Bank of
Dallas, with Darryl R. Francis, President of the Federal
Reserve Bank of St. Louis, as alternate;
Bruce K. MacLaury, President of the Federal Reserve Bank of
Minneapolis, with John J. Balles, President of 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 29, 1976, 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 connection with the Federal
Open Market Committee:
3/18/75
Arthur F. Burns
Alfred Hayes
Arthur L. Broida
Murray Altmann
Normand R. V. Bernard
Thomas J. O'Connell
Edward G. Guy
John Nicoll
J. Charles Partee
Stephen H. Axilrod
Lyle E. Gramley
Robert Solomon
Chairman
Vice Chairman
Secretary
Deputy Secretary
Assistant Secretary
General Counsel
Deputy General Counsel
Assistant General Counsel
Senior Economist
Economist (Domestic Finance)
Economist (Domestic Business)
Economist (International Finance)
Edward G. Boehne, Ralph C. Bryant,
Samuel B. Chase, Jr., Richard G.
Davis, Ralph T. Green, John
Kareken, James L. Pierce,
John E. Reynolds, and
Karl O. Scheld
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 29, 1976.
By unanimous vote, the action by Committee members on
March 10, 1975, increasing from $1 billion to $2 billion the dollar
limit specified in paragraph 2 of Authorization for Domestic Open
Market Operations on System holdings of short-term certificates of
indebtedness purchased directly from the Treasury, was ratified.
With Mr. Holland dissenting, the Committee voted to maintain the
dollar limit specified in paragraph 2 of Authorization for Domestic
Open Market Operations at $2 billion for a period of one year from
the date of this meeting, unless in the interim the Committee
should decide otherwise.
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3/18/75
By unanimous vote, the minutes of actions taken at the
meeting of the Federal Open Market Committee held on February
19, 1975, were approved.
By unanimous vote, the System open market transactions in
foreign currencies during the period February 19 through March
17, 1975, were approved, ratified, and confirmed.
By unanimous vote, renewal for further periods of 3
months of System drawings on the National Bank of Belgium
maturing on April 17 and 24, 1975, was authorized.
By unanimous vote, the System open market transactions
in Government securities, agency obligations, and bankers'
acceptances during the period February 19 through March 17, 1975,
were approved, ratified, and confirmed.
With Messrs. Bucher, Eastburn, and Sheehan dissenting, the
Federal Reserve Bank of New York was authorized and directed, until
otherwise directed by the Committee, to execute transactions for
the System Account in accordance with the following domestic policy
directive:
The information reviewed at this meeting suggests that
real output of goods and services is continuing to fall
sharply in the current quarter. In February industrial
production and employment declined substantially further.
The unemployment rate was unchanged, at 8.2 per cent, as
the civilian labor force declined sharply. Average whole
sale prices of industrial commodities rose moderately again
in February, and prices of farm and food products declined
3/18/75
sharply further. The advance in average wage rates,
although large, remained well below the increases of
last spring and summer.
The foreign exchange value of the dollar declined
in February, but it strengthened somewhat in early
March, as short-term interest rates abroad fell further
and as market attitudes toward the dollar improved some
what. In January the U.S. foreign trade deficit was
only moderately above the rate in the fourth quarter
of 1974 despite a large bulge in recorded imports of
oil. Net outflows of capital reported by banks
continued large as foreigners withdrew deposits.
The narrowly defined money stock, which had declined
sharply in January, expanded considerably in February,
and broader measures of the money stock grew at substantial
rates. Net inflows of consumer-type time and savings
deposits were particularly large. Large-denomination
CD's outstanding contracted in February and total bank
credit showed little net change. Business demands for
short-term credit remained weak, both at banks and in
the commercial paper market, while demands in the long
term market continued exceptionally strong. Since mid
February short-term market interest rates have declined
a little while longer-term yields have risen. Federal
Reserve discount rates were reduced from 6-3/4 to
6-1/4 per cent in early March.
In light of the foregoing developments, it is the
policy of the Federal Open Market Committee to foster
financial conditions conducive to stimulating economic
recovery, while resisting inflationary pressures and
working toward equilibrium in the country's balance of
payments.
To implement this policy, while taking account
of developments in domestic and international financial
markets, the Committee seeks to achieve bank reserve
and money market conditions consistent with more rapid
growth in monetary aggregates over the months ahead
than has occurred in recent months.
3/18/75
With Mr. Coldwell dissenting, the Committee voted to amend
subsection 271.5(a) of the Rules Regarding Availability of Information
as indicated below,
effective March 24,
1975:
SECTION 271.5 - DEFERMENT OF AVAILABILITY OF
CERTAIN INFORMATION
(a) Deferred availability of information.
instances,
-
In some
certain types of information of the Committee are not
published in
the Federal Register or made available for public
inspection or copying until after such period of time as the Com
mittee may determine to be reasonably necessary to avoid the effects
described in paragraph (b) of this section or as may otherwise be
necessary to prevent impairment of the effective discharge of the
Committee's statutory responsibilities.
For example, the Committee's
domestic policy directive adopted at each meeting of the Committee is
published in the Federal Register approximately 45 days after the
date of its adoption; and no information in the records of the Committee
relating to the adoption of any such directive is made available for
public inspection or coyping before it is published in the Federal
Register or is otherwise released to the public by the Committee.
By unanimous vote, the Committee reaffirmed its intention
that the memoranda of discussion prepared for individual Committee
meetings are not to be made available to the public until after the
Committee has authorized their transfer to the National Archives.
3/18/75
Consideration was then given to the continuing authorizations
of the Committee, in accordance with the customary practice of review
ing such matters at the first meeting in March of every year.
Secretary's note: On February 28, 1975, certain con
tinuing authorizations of the Committee, listed below,
had been distributed by the Secretary with the advice
that, in accordance with procedures approved by the
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 authori
zations in question placed on the agenda for conside
ration 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. Regulation relating to Open Market Operations of
Federal Reserve Banks.
Rules of Organization, Rules Regarding Availability of
7.
Information,1/ and Rules of Procedure.
By unanimous vote,
the Committee reaffirmed its intention
that the memoranda of discussion prepared for individual Committee
meetings are not to be made available to the public until after the
Committee has authorized their transfer to the National Archives.
1/ As recorded above, an amendment to Section 271.5(a) of the
Rules Regarding Availability of Information was made at this meeting.
3/18/75
By unanimous vote, the Authorization for Domestic Open
Market Operations shown below was reaffirmed:
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 inter
national 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 follow
ing such meeting and ending with the close of business on the day
of the next such meeting;
(b) 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 maturi
ties 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 with
in 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; pro
vided that the aggregate amount of bankers' acceptances held
at any one time shall not exceed $1 billion;
3/18/75
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(c) To buy U.S. Government securities, obligations 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 nonbank 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 individ
ual dealers; provided that in the event Government securities
or agency issues covered by any such agreement are not repur
chased 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 desi
rable, 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 opera
tions, 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 arrangements conducted through a Federal Reserve Bank,
under such instructions as the Committee may specify from time
to time.
3/18/75
-11By 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:
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. Stabilization Fund
established by Section 10 of the Gold Reserve Act of 1934,
with foreign monetary authorities, and with the Bank for
International Settlements:
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
B. To hold foreign currencies listed in paragraph A
above, up to the following limits:
(1) Currencies purchased spot, including curren
cies purchased from the Stabilization Fund, and sold forward
to the Stabilization Fund, up to $1 billion equivalent;
(2) Currencies purchased spot or forward, up to the
amounts necessary to fulfill other forward commitments;
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3/18/75
(3) Additional currencies purchased spot or forward,
up to the amount necessary for System operations to exert a
market influence but not exceeding $250 million equivalent; and
(4) Sterling purchased on a covered or guaranteed
basis in terms of the dollar, under agreement with the Bank of
England, up to $200 million equivalent.
C. To have outstanding forward commitments undertaken
under paragraph A above to deliver foreign currencies, up to the
following limits:
(1) Commitments to deliver foreign currencies to
the Stabilization Fund, up to the limit specified in paragraph
1B(1) above; and
(2) Other forward commitments to deliver foreign
currencies, up to $550 million equivalent.
D. To draw foreign currencies and to permit foreign
banks to draw dollars under the reciprocal currency arrange
ments 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.
2. The Federal Open Market Committee directs the Federal
Reserve Bank of New York to maintain reciprocal currency
arrangements ("swap" arrangements) for 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:
Foreign bank
Austrian National Bank
National Bank of Belgium
Bank of Canada
Amount of
arrangement
(millions of
dollars equivalent)
250
1,000
2,000
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3/18/75
Foreign bank
Amount of
arrangement
(millions of
dollars equivalent)
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
250
3,000
2,000
2,000
3,000
2,000
180
500
250
300
1,400
600
1,250
3. Currencies to be used for liquidation of System swap com
mitments 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 under
taken under paragraph 1(A) above shall, unless otherwise
expressly authorized by the Committee, be at prevailing
market rates and no attempt shall be made to establish rates
that appear to be out of line with underlying market forces.
4. It shall be the practice to arrange with foreign central
banks for the coordination of foreign currency transactions.
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.
3/18/75
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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. The Subcommittee named in Section 272.4(c) of the
Committee's rules of procedure is authorized to act on behalf
of the Committee when it is necessary to enable the Federal
Reserve Bank of New York to engage in foreign currency
operations before the Committee can be consulted. All actions
taken by the Subcommittee under this paragraph shall be re
ported promptly to the Committee.
7.
The Chairman (and in his absence the Vice Chairman of
the Committee, and in the absence of both, the Vice Chairman
of the Board of Governors) is authorized:
A. With the approval of the Committee, to enter into
any needed agreement or understanding with the Secretary of
the Treasury about the division of responsibility for
foreign currency operations between the System and the
Secretary;
B. To keep the Secretary of the Treasury fully
advised concerning System foreign currency operations, and
to consult with the Secretary on such policy matters as may
relate to the Secretary's responsibilities; and
C. From time to time, to transmit appropriate reports
and information to the National Advisory Council on Inter
national 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 3G(1) of the Board of Governors' Statement of
Procedure with Respect to Foreign Relationships of Federal
Reserve Banks dated January 1, 1944.
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3/18/75
By unanimous vote, the Foreign Currency Directive shown
below was reaffirmed:
FOREIGN CURRENCY DIRECTIVE
1. The basic purposes of System operations in foreign
currencies are:
A. To help safeguard the value of the dollar in inter
national exchange markets;
B. To aid in making the system of international payments
more efficient;
C. To further monetary cooperation with central banks
of other countries having convertible currencies, with the
International Monetary Fund, and with other international
payments institutions;
D. To help insure that market movements in exchange
rates, within the limits stated in the International Monetary
Fund Agreement or established by central bank practices, re
flect the interaction of underlying economic forces and thus
serve as efficient guides to current financial decisions,
private and public; and
E. To facilitate growth in international liquidity in
accordance with the needs of an expanding world economy.
2. Unless otherwise expressly authorized by the Federal Open
Market Committee, System operations in foreign currencies shall
be undertaken only when necessary:
A. To cushion or moderate fluctuations in the flows of
international payments, if such fluctuations (1) are deemed
to reflect transitional market unsettlement or other tempo
rary forces and therefore are expected to be reversed in the
foreseeable future; and (2) are deemed to be disequilibrating
or otherwise to have potentially destabilizing effects on
U.S. or foreign official reserves or on exchange markets, for
example, by occasioning market anxieties, undesirable specu
lative activity, or excessive leads and lags in international
payments;
3/18/75
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B. To temper and smooth out abrupt changes in spot
exchange rates, and to moderate forward premiums and discounts
judged to be disequilibrating. Whenever supply or demand
persists in influencing exchange rates in one direction,
System transactions should be modified or curtailed unless
upon review and reassessment of the situation the Committee
directs otherwise;
C. To aid in avoiding disorderly conditions in exchange
markets. Special factors that might make for exchange mar
ket instabilities include (1) responses to short-run increases
in international political tension, (2) differences in phasing
of international economic activity that give rise to unusually
large interest rate differentials between major markets, and
(3) market rumors of a character likely to stimulate specula
tive transactions. Whenever exchange market instability
threatens to produce disorderly conditions, System transactions
may be undertaken if the Manager reaches a judgment that they
may help to reestablish supply and demand balance at a level
more consistent with the prevailing flow of underlying pay
ments. In such cases, the Manager shall consult as soon as
practicable with the Committee or, in an emergency, with the
members of the Subcommittee designated for that purpose in
paragraph 6 of the Authorization for Foreign Currency Operations;
and
D. To adjust System balances within the limits established
in the Authorization for Foreign Currency Operations in light
of probable future needs for currencies.
3. System drawings under the swap arrangements are appropriate
when necessary to obtain foreign currencies for the purposes
stated in paragraph 2 above.
4. Unless otherwise expressly authorized by the Committee,
transactions in forward exchange, either outright or in con
junction with spot transactions, may be undertaken only (i)
to prevent forward premiums or discounts from giving rise to
disequilibrating movements of short-term funds; (ii) to
minimize speculative disturbances; (iii) to supplement exist
ing market supplies of forward cover, directly or indirectly
as a means of encouraging the retention or accumulation of
dollar holdings by private foreign holders; (iv) to allow
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3/18/75
greater flexibility in covering System or Treasury
commitments, including commitments under swap arrange
ments, and to facilitate operations of the Stabilization
Fund; (v) to facilitate the use of one currency for the
settlement of System or Treasury commitments denominated
in other currencies; and (vi) to provide cover for System
holdings of foreign currencies.
It was agreed that the next meeting of the Committee
would be held on Monday and Tuesday, April 14 and 15, 1975,
beginning at 4:00 p.m. on Monday.
The meeting adjourned.
Secretary
@FedFRASER