View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

Meeting of the Federal Open Market Committee
December 19-20, 1983
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 Monday, December 19, 1983, at 3:00 p.m., and
continuing on Tuesday, December 20, 1983, at 9:00 a.m.

PRESENT:

Mr. Volcker, Chairman
Mr. Solomon, Vice Chairman
Mr. Gramley
Mr. Guffey
Mr. Keehn
Mr. Martin
Mr. Morris
Mr. Partee
Mr. Rice
Mr. Roberts
Mrs. Teeters
Mr. Wallich
Messrs. Boehne, Boykin, Corrigan, and Mrs. Horn, Alternate
Members of the Federal Open Market Committee
Messrs. Balles, Black, and Forrestal, Presidents of the Federal
Reserve Banks of San Francisco, Richmond, and Atlanta,
respectively

Mr. Axilrod, Staff Director and Secretary
Mr. Bernard, Assistant Secretary
Mrs. Steele, Deputy Assistant Secretary
Mr. Bradfield, General Counsel
Mr. Oltman, Deputy General Counsel
Mr. Kichline, Economist
Mr. Truman, Economist (International)
Messrs. R. Davis, T. Davis, Eisenmenger, Prell, Siegman,
Scheld, and Zeisel, Associate Economists
Mr. Cross, Manager for Foreign Operations,
System Open Market Account
Mr. Sternlight, Manager for Domestic Operations,
System Open Market Account

12/19-20/83

Mr. Coyne, Assistant to the Board of Governors
Mr. Roberts, Assistant to the Chairman, Board of Governors
Mr. Kohn, Deputy Staff Director, Office of Staff
Director for Monetary and Financial Policy,
Board of Governors
Mr. Gemmill, Senior Associate Director, Division of
International Finance, Board of Governors
Mr. Lindsey, Associate Director, Division of Research
and Statistics, Board of Governors
Mrs. Low, Open Market Secretariat Assistant,
Board of Governors
Messrs. Burns, J. Davis, Koch, Mullineaux, Keran, and
Stern, Senior Vice Presidents, Federal Reserve Banks
of Dallas, Cleveland, Atlanta, Philadelphia, San
Francisco, and Minneapolis, respectively
Messrs. Broaddus and Burger, Vice Presidents, Federal
Reserve Banks of Richmond and St. Louis
Mr. McCurdy, Research Officer, 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 November 14-15, 1983, were approved.
The report of examination of the System open market account, made
by the Board's Division of Federal Reserve Bank Operations as of the close of
business February 4, 1983, was accepted.
By unanimous vote, System open market transactions in foreign
currencies during the period November 15 through December 19, 1983, were
ratified.
By unanimous vote, System open market transactions in Government
securities, agency obligations, and bankers acceptances during the period
November 15 through December 19, 1983, were ratified.

12/19-20/83

-3-

By unanimous vote, the Committee extended the temporary increase
to $5 billion in the limit specified in paragraph 1(a) of the authorization
for domestic open market operations for the intermeeting period beginning
December 21, 1983.
With Mr. Martin dissenting, 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 real GNP has grown at a relatively rapid pace in
the current quarter, although the rate of expansion
appears to have moderated since the spring and summer.
In November, industrial production and nonfarm payroll
employment increased appreciably further and the civilian
unemployment rate declined 0.4 percentage point to 8.4
percent. Retail sales rose substantially in November
following sizable gains in September and October.
Housing starts increased in November to a level close
to their third-quarter average. Recent data indicate
continuing expansion in business capital spending.
Producer prices were little changed on average in
October and November, and consumer prices continued
to increase in October at about the same pace as in
other recent months. The index of average hourly
earnings changed little in November after rising
somewhat faster in September and October than in
previous months; over the first eleven months of
the year the index has risen more slowly than in 1982.
The foreign exchange value of the dollar has
risen considerably further since mid-November against
a trade-weighted average of major foreign currencies.
In October the U.S. foreign trade deficit was markedly
higher than in the third quarter, reflecting a sharp
rise in imports.
After slowing substantially over the summer months,
growth in M2 and M3 strengthened in October and November.
Ml continued to grow at a sluggish pace in November but
increased substantially in early December. Through

12/19-20/83

November, M2 was at a level in the lower portion of the
Committee's range for 1983, M3 was close to the upper
limit of its range, and M1 was near the lower end of
the Committee's monitoring range for the second half
of the year. Most interest rates have risen somewhat
since mid-November.
The Federal Open Market Committee seeks to foster
monetary and financial conditions that will help to
reduce inflation further, promote growth in output on
a sustainable basis, and contribute to a sustainable
pattern of international transactions. At its meeting
in July the Committee reconsidered the growth ranges
for monetary and credit aggregates established earlier
for 1983 in furtherance of these objectives and set
tentative ranges for 1984. The Committee recognized
that the relationships between such ranges and ultimate
economic goals have become less predictable; that the
impact of new deposit accounts on growth of monetary
aggregates cannot be determined with a high degree
of confidence; and that the availability of interest
on large portions of transaction accounts may be
reflected in some changes in the historical trends
in velocity.
Against this background, the Committee at its
July meeting reaffirmed the following growth ranges
for the broader aggregates: for the period from
February-March of 1983 to the fourth quarter of 1983,
7 to 10 percent at an annual rate for M2; and for
the period from the fourth quarter of 1982 to the
fourth quarter of 1983, 6-1/2 to 9-1/2 percent for
M3. The Committee also agreed on tentative growth
ranges for the period from the fourth quarter of
1983 to the fourth quarter of 1984 of 6-1/2 to 9-1/2
percent for M2 and 6 to 9 percent for M3. The
Committee considered that growth of M1 in a range
of 5 to 9 percent from the second quarter of 1983
to the fourth quarter of 1983, and in a range of
4 to 8 percent from the fourth quarter of 1983 to
the fourth quarter of 1984, would be consistent with
the ranges for the broader aggregates. The associated
range for total domestic nonfinancial debt was reaffirmed
at 8-1/2 to 11-1/2 percent for 1983 and tentatively set
at 8 to 11 percent for 1984.

12/19-20/83
In implementing monetary policy, the Committee agreed
that substantial weight would continue to be placed on the
behavior of the broader monetary aggregates. The behavior
of M1 and total domestic nonfinancial debt will be monitored,
with the degree of weight placed on M1 over time dependent
on evidence that velocity characteristics are resuming
more predictable patterns. The Committee understood that
policy implementation would involve continuing appraisal
of the relationships between the various measures of money
and credit and nominal GNP, including evaluation of con
ditions in domestic credit and foreign exchange markets.
The Committee seeks in the short run to maintain at
least the existing degree of reserve restraint. The
action is expected to be associated with growth of M2
and M3 at annual rates of around 8 percent from November
to March. The Committee anticipates that M1 growth at
an annual rate of around 6 percent from November to March
will be consistent with its objectives for the broader
aggregates, and that expansion in total domestic non
financial debt would continue at around its recent pace.
Depending on evidence about the continuing strength of
economic recovery and other factors bearing on the
business and inflation outlook, somewhat greater restraint
would be acceptable should the aggregates expand more
rapidly. The Chairman may call for Committee consulta
tion if it appears to the Manager for Domestic Operations
that pursuit of the monetary objectives and related
reserve paths during the period before the next meeting
is likely to be associated with a federal funds rate
persistently outside a range of 6 to 10 percent.
The meeting adjourned.

Secretary