94-542 O Y 4. B 22' : M7424/977-2 CONDUCT OF MONETARY POLICY 95-1 HEARINGS BEFORE THE 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 HOUSE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS HENRY S. REUSS, Wisconsin, Chairman THOMAS L. ASHLEY, Ohio WILLIAM S. MOORHEAD, Pennsylvania District of Columbia STEPHEN L. NEAL, North Carolina PAUL E. TSONGAS, Massachusetts MARK W. HANNAFORD, California NORMAN E. D'AMOURS, New Hampshire HERMAN BADILLO, New York EDWARD W. PATTISON, New York JOHN J. CAVANAUGH, Nebraska MARY ROSE OAKAR, Ohio BRUCE F. VENTO, Minnesota WES WATKINS, Oklahoma J. WILLIAM STANTON, Ohio RICHARD KELLY, Florida NEWTON I. STEERS, JR., Maryland HAROLD C. HOLLENBECK, New Jersey PAUL NELSON, Clerk and Staff Director GRASTY CREWS II, Counsel MERCER L. JACKSON, Minority Staff Director STATEMENTS Burns, Hon. Arthur F., Chairman, Board of Governors, Federal Reserve Fellner, Dr. William J., American Enterprise Institute_... Heller, Dr. Walter W., Regents' Professor of Economics, University of Sindlinger, Albert E., chairman of the board, Sindlinger & Co., Inc., Averbach, Dr. Robert D., paper written in collaboration with Dr. Jack L. Rutner entitled "Seasonal Adjustment Distortions Caused by the X-11 Heller, Dr. Walter W., prepared statement on "An Appraisal of Federal Sindlinger, Albert E., prepared statement_. 71 9 37 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: 1 First, money supply: "For M1, 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 M1 had been running at the bottom of the 412-612 percent range. We are pleased that for the year ending July 1, 1977, M, 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 (1) |