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FEDERAL RESERVE

For Use at 4:30 p.m.

February 3, 1984

The Federal Reserve Board and the Federal Open Market
Committee today released the attached record of policy actions
taken by the Federal Open Market Committee at its meeting on
December 19-20, 1983.
Such records for each meeting of the Committee are made
available a few days after the next regularly scheduled meeting
and are published in the Federal Reserve Bulletin and the Board's
Annual Report.

The summary descriptions of economic and financial

conditions they contain are based solely on the information that
was available to the Committee at the time of the meeting.

Attachment

RECORD OF POLICY ACTIONS OF THE
FEDERAL OPEN MARKET COMMITTEE
Meeting Held on December 19-20, 1983
1.

Domestic policy directive
The information reviewed at this meeting suggested that real GNP

was growing at a relatively rapid pace in the current quarter, although the
rate of expansion appeared to have moderated from the third-quarter pace.
Strength in personal consumption expenditures and in business spendingparticularly for inventories and equipment--is apparently contributing
to the continued expansion in economic activity.

Price and wage increases

generally have remained moderate, though advances in some indexes have been
somewhat larger than in the spring and summer.
The index of industrial production increased 0.8 percent in
November, the same as in October.

Output of business equipment continued

to rise briskly, registering average increases of nearly 1-1/2 percent in
each of the two months.

Output of materials also continued to increase

rapidly, but production of consumer goods and construction supplies rose
only slightly.

The rate of capacity utilization in manufacturing increased

0.5 percentage point further in November to 79.4 percent, well above its
recession low of 68.8 percent a year earlier.
Nonfarm payroll employment, adjusted for strike activity, advanced
about 345,000 further in November; the rise was larger than in October but
about the same as the average monthly increase in the second and third
quarters.

Employment gains were widespread, and were particularly marked

in manufacturing and service industries.

The civilian unemployment rate

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12/19-20/83

fell 0.4 percentage point further to 8.4 percent, nearly 2-1/2 percentage
points below its peak in December 1982.
The nominal value of retail sales rose 1.9 percent in November,
after increases of 1.4 percent in each of the preceding two months.

Sales

increased at most major categories of stores in November, including a sub
stantial rise in purchases of discretionary items, as indicated by strong
outlays at general merchandise and apparel stores.

Sales at automotive

While sales of new domestic automobiles, at

outlets also rose markedly.

an annual rate of about 7 million units in both October and November, were
up only slightly from the average selling pace in the third quarter, the
annual rate of imported car sales averaged about 350,000 units higher in
those months than in the third quarter.
Private housing starts rose about 6-1/2 percent in November, to
an annual rate of about 1-3/4 million units, and newly issued permits for
residential construction increased marginally.

For both series, the

levels in November were close to the averages in the third quarter.

In

October, sales of existing homes fell about 5-1/2 percent below their
average in the third quarter, while sales of new homes rose for the second
consecutive month.
Indicators of business capital spending have moved somewhat errat
ically in recent months, but generally suggest continued relatively strong
expansion in that sector.

Shipments of nondefense capital goods surged in

September but fell somewhat in October.

New orders, however, recorded

strong gains in September and October, and the backlog of unfilled orders
rose sharply in both months.

12/19-20/83
The producer price index for finished goods had changed little on
average over the previous two months, rising 0.3 percent in October and
falling 0.2 percent in November.

Thus far in 1983 the index had increased

at an annual rate of less than 1/2 percent.

The consumer price index rose

0.4 percent in October, about the same as in the preceding three months;
over the first ten months of the year, consumer prices had increased at
an annual rate of about 4 percent.

The index of average hourly earnings

was little changed in November, after rising somewhat faster in September
and October than in previous months.

Thus far in 1983 the index had in

creased at an annual rate of about 3-1/2 percent, compared with a rise of 6
percent in 1982.
In foreign exchange markets the trade-weighted value of the
dollar had risen more than 3 percent since the FOMC meeting in mid
November, surpassing the peak recorded in August.

Increasing inter

national tensions apparently contributed to the dollar's strength, as
investors viewed dollar assets as a "safe haven" in the face of concerns
about the security of financial assets in some other parts of the world.
Evidence of continued strong expansion in U.S. economic activity also
fueled the dollar's rise.

News of a record trade deficit for October, at

a rate markedly higher than that in the third quarter, slowed the apprecia
tion of the dollar only temporarily.

The rise in the deficit reflected a

sharp increase in imports, as exports were about unchanged.
At its meeting on November 14-15, 1983, the Committee had
decided that in the short run, open market operations should be directed
toward maintaining the existing degree of reserve restraint.

The members

12/19-20/83

-4-

anticipated that such a policy would continue to be associated with growth
of M2 and M3 at an annual rate of around 8-1/2 percent for the period
from September to December, consistent with the growth ranges established for
those aggregates for the year.

Those ranges were 7 to 10 percent at an

annual rate for M2 for the period from February-March of 1983 to the fourth
quarter of 1983; and 6-1/2 to 9-1/2 percent for M3 for the period from the
fourth quarter of 1982 to the fourth quarter of 1983.

It was agreed that

over the coming intermeeting period the need for greater or lesser restraint
on reserve conditions should be evaluated on the basis of evidence about
the continuing strength of the economic recovery and other factors bearing
on the business and inflation outlook.

Depending on such evidence, somewhat

greater restraint would be acceptable should the aggregates expand more
rapidly, while lesser restraint might be acceptable in the context of a
significant shortfall in growth of the aggregates from current expectations.
Growth in M2 and M3, after slowing substantially over the summer
months, strengthened in October and November.

M2 was growing at a pace

close to the annual rate of 8-1/2 percent specified by the Committee for
the September-to-December period; M3 grew at an annual rate of 8-1/2 percent
in October but increased at a faster pace in November, as banks relied more
on managed liabilities, partly to offset a massive runoff of U.S. Treasury
balances associated with the temporary delay in raising the federal debt
limit.

M1 continued to expand at a sluggish pace in November but in

creased substantially in early December.

Through November, M2 was in the

lower portion of the Committee's longer-run range for the year 1983, M3 was
close to the upper limit of its range, and M1 was near the lower end of the

12/19-20/83

Committee's monitoring range of 5 to 9 percent for the period from the
second quarter of 1983 to the fourth quarter of 1983.
The debt of domestic nonfinancial sectors was estimated to have
continued expanding at a moderate pace in November, and its level remained
well within the Committee's monitoring range of 8-1/2 percent to 11-1/2
percent for the year.

Growth in credit at U.S. commercial banks rose to

an estimated annual rate of about 14 percent in November, reflecting an
acceleration in growth of total loans and continued heavy acquisitions of
Treasury securities.

Real estate and consumer lending, while moderating

somewhat in November, remained strong.

Borrowing by businesses picked

up, as issuance of commercial paper slowed considerably from the brisk
pace of previous months and financing in long-term debt markets remained
light.
Total reserves contracted in November, as required reserves declined
in association with a drop in demand deposits.

Nonborrowed reserves fell

by more, as the average level of adjustment borrowing rose in that month.
Demands for borrowing eased off in the first half of December, however.

Over

the intermeeting interval as a whole, adjustment plus seasonal borrowing
ranged from about $440 million to $865 million, averaging about $685 million
during the four statement weeks ending December 14, only slightly above the
average during the previous intermeeting period.
Federal funds continued to trade in a range of about 9-1/4 to
9-1/2 percent over the period, with recent trading generally near the
upper end of that range.

Other short-term interest rates rose about 1/4

to 3/4 percentage point over the intermeeting period, while most long-term

12/19-20/83

rates increased about 1/4 percentage point.

Rates on municipal bonds rose

somewhat more, as issuers marketed large volumes of such securities in advance
of deadlines on some types of issuance or in anticipation of legislation in
1984 imposing restrictions on the issuance of certain tax-exempt bonds.
Average rates on new commitments for fixed-rate conventional home mortgage
loans changed little over the period and have fluctuated in a narrow range
near 13.40 percent since late October.
The staff projections presented at this meeting continued to indicate
that growth of real GNP would slow from the rapid rate of recent quarters to
a more moderate pace in 1984.

Consumption expenditures and housing outlays

were projected to moderate after growing rapidly in 1983, and the stimulus to
economic growth from inventory accumulation was likely to diminish.

However,

business fixed investment was expected to show continued strength, and the
deterioration in net exports of goods and services was expected to slow over
the course of 1984.

A decline in the unemployment rate was anticipated over

the projection period, and upward pressures on prices were expected to remain
generally moderate.
In the Committee's discussion of the economic situation and outlook,
the members commented that further expansion in economic activity remained a
likely prospect for 1984 but that the rate of growth would probably slow con
siderably from the pace in recent quarters.

At the same time, members referred

to the many uncertainties that clouded the outlook, and several expressed con
cern that inflationary pressures might worsen during the year.

Reports from

around the country indicated widespread improvement in business conditions and
the development of considerable optimism in the business community, although it
was also noted that some industries were still operating well below capacity.

12/19-20/83

In the view of some Committee members, the expansion in economic
activity during 1984 might well exceed the staff projection, given the momentum
In particular, it was

of the recovery and a stimulative fiscal policy.

suggested that the currently high level of confidence among businessmen and
large cash flows to business firms favored relatively rapid expansion in
business fixed investment.

Some members also referred to the possibility of

a build up in inventories by firms that had been experiencing strong sales
and increasing delays in obtaining new supplies of many products.
Other members were somewhat less sanguine about the prospective
strength of the ongoing expansion.

Some emphasized the vulnerability of

the economy to a substantial rise in interest rates, should one occur,
from levels that were already high in real terms.

In this connection,

members referred to the desirability of prompt action to reduce the federal
deficit, whose size, both current and prospective, was a major factor
maintaining upward pressure on interest rates.

High interest rates, apart

from their adverse impact on interest-sensitive sectors of the domestic
economy such as housing, also would tend to exert upward pressure on the
value of the dollar in foreign exchange markets, with further unfavorable
consequences for U.S. exports, and would add to difficulties inherent in the
current international debt situation.
Other comments about the economic outlook included the view of
one member that, if very sluggish growth in M1 over the course of recent
months were to continue, it could lead to a downturn in economic activity
by the second or third quarter of 1984.

Another member raised the

possibility that sales might prove to be disappointing over the months

12/19-20/83

ahead in relation to the apparently exuberant expectations of many business
leaders, and such a development would tend to restrain spending on both fixed
investment and inventories.

One member also commented that the backlog in

demand for housing appeared to have been used up, and further demand was likely
to be weak under foreseeable financial conditions.
Partly because of these differences about the outlook for economic
activity, the members expressed somewhat divergent views with regard to
prospects for inflation over the year ahead.

A number of members, while

acknowledging the possibility of some rise in the rate of inflation during
the second year of a recovery, believed that any such rise was likely to
be moderated by sizable margins of unused capacity in many industries, by
continuing strong competition from foreign suppliers, and by a still relatively
high, if declining, rate of unemployment.

Some of these members also observed

that recent statistics on commodity and other prices did not suggest that the
rate of inflation was accelerating.
Other members were less optimistic about the prospects for inflation.
Several commented on indications of a strengthening in inflationary expectations
among participants in financial markets and among businessmen, many of whom
were reportedly looking for opportunities to raise prices.

Underlying wage

pressures, which had been held down by depressed conditions in many industries,
were also seen by many members as likely to increase as profits continued to
improve.

Reference was also made to the adverse implications for costs and for

inflationary pressures of a projected decline in productivity growth.

One member

expressed the view that large increases in M1 during the latter part of 1982 and
the first part of 1983 would probably be reflected, after an expected lag, in

-9-

12/19-20/83

accelerating inflation by the latter part of 1984.

It was also noted that

a significant decline in the foreign exchange value of the dollar, if it
should occur as many observers expected, would contribute to domestic
inflation.

In this connection concern was expressed that, as the foreign

exchange value of the dollar rose to a relatively high level, the dollar
would be exposed increasingly to a precipitate drop, and if such a drop came
when the economy was operating closer to full capacity, it would tend to
have a much more substantial inflationary impact than otherwise.
At its meeting in July, the Committee had agreed on tentative
growth ranges of 6-1/2 to 9-1/2 percent for M2 and 6 to 9 percent for
M3 during the period from the fourth quarter of 1983 to the fourth quarter
of 1984.

The Committee believed that growth of M1 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 provisionally
set at 8 to 11 percent for 1984.

At this meeting the Committee began a

review of the ranges for 1984 in the expectation that at its next meeting
it would complete the review and establish ranges for the year within the
framework of the Full Employment and Balanced Growth Act of 1978 (the
1/
Humphrey-Hawkins Act).

1/

The Committee also discussed the implications for open market operating
procedures of the shift to contemporaneous reserve requirements effective
February 2, 1984. The Committee's views were set forth in an announcement
dated January 13, 1984, a copy of which is attached.

-10-

12/19-20/83

In the Committee's discussion of policy for the near term,
most of the members agreed that the continued strength of the economic
expansion and the spreading optimism, with the attendant risk that
inflationary sentiment would intensify, argued against any easing of
reserve conditions and in favor of maintaining at least the existing
degree of reserve restraint.

Such a policy would contemplate a slight

move toward greater restraint if economic and monetary developments
appeared to warrant such a course.

According to an analysis presented

at this meeting, the existing restraint on reserve conditions was
likely to be associated with growth in M2 and M3 during the period
from November to March at rates that were well within the ranges that
the Committee had tentatively set previously for 1984.

Such a policy

was also likely to result in a considerable acceleration in the growth
of M1 over the four-month period, given the anticipation that demands for
transaction balances would be more in line with

spending than they had

been in recent months.
While nearly all the members could accept a policy of maintaining
at least the existing degree of reserve restraint, some expressed a
preference for some slight firming immediately in light of their assess
ment of the economic situation and concerns about the potential for a
re-emergence of inflationary pressures.

Other members preferred to make

no change in the existing degree of restraint for now, pending a further
evaluation of economic developments and monetary growth.

In the view of

some of these members, even a slight firming of reserve conditions at
this time would incur the risk of a relatively pronounced reaction in
financial markets, with damaging consequences for housing and other

-11-

12/19-20/83

interest-sensitive sectors of the economy.

Some members also emphasized

that higher domestic interest rates could have a very undesirable impact
on the value of the dollar in foreign exchange markets and on the inter
national debt situation.

A number of members were also influenced by the

relatively sluggish growth of M1 over the course of recent months, although
such growth appeared to be accelerating in December.

Some urged that greater

weight be placed on M1 in the formulation and implementation of policy; and
in the view of one member, reserve conditions should be eased promptly if
it became clear that growth in M1 was remaining sluggish.
At the conclusion of the discussion, most of the members indicated
their acceptance of a short-run policy that called for maintaining at least
the existing degree of restraint on reserve positions, subject to the
possibility of a slight increase in such restraint depending on develop
ments relating to the outlook for economic activity and price pressures and
on evidence that monetary growth appeared to be exceeding the Committee's
expectations.

The members anticipated that such a policy would be associa

ted with growth of both M2 and M3 at an annual rate of around 8 percent
for the period from November 1983 to March 1984.

The Committee believed

that an acceleration in the growth of M1 to an annual rate of around 6 per
cent for the four-month period was likely to be consistent with its objec
tives for the broader aggregates and that expansion in total domestic non
financial debt over this period would be within the tentative range of 8
to 11 percent established for the year 1984.

It was agreed that the inter

meeting range for the federal funds rate, which provides a mechanism for
initiating consultation of the Committee, would remain at 6 to 10 percent.

12/19-20/83

-12-

It was also understood that the Committee would consult should the aggregates
and the economy turn out to be significantly weaker than expected.
At the conclusion of the meeting, the Committee issued the
following domestic policy directive to the Federal Reserve Bank of New
York:
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.
M1 continued to grow at a sluggish pace in November but
increased substantially in early December. Through
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

12/19-20/83

-13-

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.
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

12/19-20/83

-14

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.
Votes for this action: Messrs. Volcker,
Solomon, Gramley, Guffey, Keehn, Morris, Partee,
Rice, Roberts, Mrs. Teeters and Mr. Wallich.
Vote against this action: Mr. Martin.
Mr. Martin dissented from this action because of his concern that
any tightening of reserve conditions and the associated increase in interest
rates would present a threat to the sustainability of the economic expansion:
needed business investment would be more expensive, international debt
servicing more burdensome, and interest-sensitive housing more vulnerable.
2.

Authorization for Domestic Open Market Operations
At its previous meeting the Committee had voted to increase

from $4 billion to $5 billion the limit on changes between Committee
meetings in System Account holdings of U.S. government and federal agency
securities specified in paragraph 1(a) of the authorization for domestic
open market operations, for the intermeeting period ending with the close
of business on December 20, 1983.

At this meeting the Committee voted to

retain the $5 billion limit for the upcoming intermeeting interval be
ginning on December 21, 1983.
Votes for this action: Messrs. Volcker,
Solomon, Gramley, Guffey, Keehn, Martin, Morris,
Partee, Rice, Roberts, Mrs. Teeters, and Mr.
Wallich. Votes against this action: None.

-15

12/19-20/83

This action was taken on the recommendation of the Manager
for Domestic Operations.

The Manager had advised that substantial net

sales of securities were likely to be required during the weeks ahead
in order to absorb reserves that had been provided recently to meet
seasonal needs for currency in circulation.

For immediate release

January 13, 1934

The Federal Reserve today issued the attached statement which
discusses the relationship of contemporaneous reserve requirements to open
market operating procedures.
-0-

Attachment

Beginning Thursday, February 2, the new contemporaneous reserve
requirement (CRR) system will become effective.

In that connection, questions

have been raised about the implications of this change for the Federal Reserve's
open market operating procedures.
Federal Open Market Committee.

This issue has been considered by the

Taking account of technical transitional

uncertainties as well as policy judgments about the role of M1 and other
monetary aggregates under current circumstances, the Committee agreed to
make no substantial change in current operating procedures at this time.
Background
The new CRR system differs from the present lagged reserve requirement
structure in two principal ways.

First, required reserves against transactions

deposits will have to be held on an essentially contemporaneous basis, instead
of being lagged by two weeks.

Second, the reserve holding period has been

lengthened from one week to two weeks (with the relevant period for deposits
also lengthened to roughly the same two weeks--the 2-week deposit period
running from Tuesday to the second Monday, and the reserve period running
from Thursday to the second Wednesday).
This structural change in the reserve accounting system has
tightened the linkage between reserves and the current behavior of transactions
deposits--demand deposits and interest-bearing accounts with full checking
privileges (NOW and similar accounts).

These deposits, along with currency,

held by the public, comprise M1, the measure of money most nearly related
to the transactions needs of the economy.

But because of NOW and similar

accounts, which have grown substantially in volume over the past few years,
M1 is also affected by saving propensities and patterns.

The Committee

has been placing less weight than formerly on M1 because of the institutional
changes that have altered its composition, affected its behavior, and increased
uncertainties about its relationship to the economy.
Other, broader aggregates--M2 and M3--encompass M1 plus other highly
liquid assets and forms of saving, such as money market funds accounts and time
and savings deposits held at banks and thrift institutions.

Some of these

other assets also, in one degree or another, serve transactions purposes,
though they are not, by law, subject to transactions reserve requirements.
In general, the bulk of the assets in the broad aggregates are not subject
to reserve requirements, although nonpersonal time deposits bear a relatively
small lagged requirement.
Open market operations and CRR
Adaptations in open market operating procedures to CRR must take
account of certain technical and transitional issues as well as the policy
issue about the weight to be given M1 and other monetary aggregates in
operations.

The more technical and transitional issues involve how the

depository system as a whole adjusts to the new reserve requirement systemwhich may influence demands for excess reserves, attitudes toward the
discount window, and the speed of asset and liability adjustments generally.
It can be expected that some time will elapse before banks and other depository
institutions have fully adjusted their reserve management, as well as portfolio
and liability management, to the new system.
accustomed

Money managers have to become

to operating without certain knowledge of their required reserves

for a full reserve averaging period during most of that period.

In addition,

-3
usual start-up problems with new data systems will probably add to uncertainties
at least for a while.

Such data problems would also affect the timing and

reliability of figures available to the Federal Reserve.
These technical issues aside, the new reserve requirement structure
would potentially permit somewhat closer short-term control of M1 in particular.
With CRR, if open market operations were geared primarily to M1, an "automatic"
tightening or easing of reserve positions that worked to bring M1 under control
would tend to occur somewhat more promptly than with lagged reserve accounting.
Whether operating procedures should be adapted for this purpose
does not depend on the technical characteristics of the reserve requirement
system in place but rather on broader policy judgments about the relative weight
to be given to M1 as a target and the desirability of seeking close short-run
control of that aggregate.

To the extent less weight continues to be placed

on M1, and relatively more on broader aggregates less closely related to
reserves,"automatic" changes in reserve pressures in response to short-run
movements in M1 alone may not be appropriate.
In light of these various considerations, the Committee agreed that
no substantial change would be made in open market operating procedures at
this time.

These operating procedures will be reviewed after a transitional

period in the context of the role played by the monetary aggregates,
particularly M1, in policy implementation and the potential implicit in CRR
for achieving closer short-run control of M1.