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COMMITTEE ON
BANKING, FINANCE AND URBAN AFFAIRS

HOUSE OF REPRESENTATIVES

NINETY-FIFTH CONGRESS

FIRST SESSION

JULY. 28 AND 29, 1977

Printed for the use of the
Committee on Banking, Finance and Urban Affairs

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U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 1977

94-542 0

HOUSE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS

HENRY S. REUSS, Wisconsin, Chairman THOMAS L. ASHLEY, Ohio

WILLIAM STANTON, Ohio WILLIAM S. MOORHEAD, Pennsylvania GARRY BROWN, Michigan FERNAND J. ST GERMAIN, Rhode Island CHALMERS P. WYLIE, Ohio HENRY B. GONZALEZ, Texas

JOHN H. ROUSSELOT, California JOSEPH G. MINISH, New Jersey

STEWART B. MCKINNEY, Connecticut FRANK ANNUNZIO, Illinois

· GEORGE HANSEN, Idaho JAMES M. HANLEY, New York

HENRY J. HYDE, Illinois PARREN J. MITCHELL, Maryland

RICHARD KELLY, Florida WALTER E. FAUNTROY,

CHARLES E. GRASSLEY, Iowa District of Columbia

MILLICENT FENWICK, New Jersey STEPHEN L. NEAL, North Carolina

JIM LEACH, Iowa JERRY M, PATTERSON, California

NEWTON I. STEERS, JR., Maryland JAMES J. BLANCHARD, Michigan

THOMAS B. EVANS, JR., Delaware CARROLL HUBBARD, JR., Kentucky

BRUCE F. CAPUTO, New York JOHN J. LAFALCE, New York

HAROLD C. HOLLENBECK, New Jersey
GLADYS NOON SPELLMAN, Maryland
LES AUCOIN, Oregon
PAUL E. TSONGAS, Massachusetts
BUTLER DERRICK, South Carolina
MARK W. HANNAFORD, California
DAVID W. EVANS, Indiana
CLIFFORD ALLEN, Tennessee
NORMAN E. D'AMOURS, New Hampshire
STANLEY N. LUNDINE, New York
HERMAN BADILLO, New York
EDWARD W. PATTISON, New York
JOHN J. CAVANAUGH, Nebraska
MARY ROSE OAKAR, Ohio
JIM MATTOX, Texas
BRUCE F. VENTO, Minnesota
DOUG BARNARD, Georgia
WES WATKINS, Oklahoma

PAUL NELSON, Clerk and Staff Director
WILLIAM P. Dixon, General Counsel
MICHAEL P. FLAHERTY, Counsel

GRASTY CREWS II, Counsel
MERCER L. JACKSON, Minority Staff Director
GRAHAM T. NORTHUP, Deputy Minoriyt Staff Director

CONDUCT OF MONETARY POLICY

THURSDAY, JULY 28, 1977

HOUSE OF REPRESENTATIVES,
COMMITTEE ON BANKING, FINANCE, AND URBAN AFFAIRS,

Washington, D.C. The committee met at 10:25 a.m. in room 2128 of the Rayburn House Office Building; Hon. Henry S. Reuss (chairman of the committee) presiding

Present: Representatives Reuss, Annunzio, Hanley, Blanchard, LaFalce, Spellman, Lundine, Pattison, Vento, Barnard, Stanton, Brown, Hansen, Kelly, Leach, Caputo, and Hollenbeck.

The CHAIRMAN. Good morning. The House Committee on Banking, Finance and Urban Affairs will be in order for its series of hearings on monetary policy.

Following this committee's last dialog with the Federal Reserve on monetary policy, 31 members of the committee on February 9, 1977, wrote the Federal Reserve Board and the Federal Open Market Committee conveying “our judgment that monetary policy during 1977 should aim at reducing unemployment and fostering recovery, without rekindling demand inflation, consistent with President Carter's proposed stimulus." In our letter, we made three recommendations to the Fed:

First, money supply: "For M, in the months ahead, growth should be off the bottom of the range, and at least in the middle of the range. At that time, the Fed's growth rate for M, had been running at the bottom of the 41/2-612 percent range. We are pleased that for the year ending July 1, 1977, Mi grew at about 6 percent, closely following our February 9 recommendation.

Second, interest rates: "Such monetary policy should give the Nation stable interest rates in the months ahead." In fact, intermediate and long-term rates have been remarkably stable since early February. The yield on 3 to 5 year Treasuries drifted down from 6.8 percent to 6.5 percent between February and June of this year. This represented a decline from 7.4 percent from June 1976. Longer term Treasury rates also were well

below year-ago levels. Third, the Federal Reserve's portfolio: “We commend the Federal Reserve for modest lengthening of the maturity of its security portfolio in 1976, and urge that such lengthening be continued." It is gratifying to see that lengthening of the portfolio has continued. From July 1976, to July 1977, the percentage of U.S. Government and agency securities of less than 1 year in the Fed portfolio has declined from 51.3 percent to 48.8 percent; and the percentage of 1-5 year securities has declined from 32.9 percent to 32 percent. The percentage

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