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Meeting of the Federal Open Market Committee
February 5-6, 1991
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, February 5, 1991, at 2:30 p.m. and was
continued on Wednesday, February 6, 1991, at 9:00 a.m.
PRESENT:
Mr. Greenspan, Chairman
Mr. Corrigan, Vice Chairman
Mr. Angell
Mr. Black
Mr. Forrestal
Mr. Keehn
Mr. Kelley
Mr. LaWare
Mr. Mullins
Mr. Parry
Ms. Seger
Messrs. Guffey, Hoskins, Melzer, and Syron, Alternate
Members of the Federal Open Market Committee
Messrs. Boehne, McTeer, and Stern, Presidents of the
Federal Reserve Banks of Philadelphia, Dallas,
and Minneapolis, respectively
Mr. Kohn, Secretary and Economist
Mr. Bernard, Deputy Secretary
Mr. Coyne, Assistant Secretary
Mr. Gillum, Assistant Secretary
Mr. Mattingly, General Counsel
Mr. Prell, Economist
Messrs. Beebe, Broaddus, R. Davis, Lindsey,
Promisel, Scheld, Siegman, Simpson, Slifman,
and Ms. Tschinkel, Associate Economists
Mr. Sternlight, Manager for Domestic Operations,
System Open Market Account
Mr. Cross, Manager for Foreign Operations,
System Open Market Account
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Mr. Ettin, Deputy Director, Division of Research and
Statistics, Board of Governors
Mr. Stockton, Associate Director, Division of Research
and Statistics, Board of Governors
Mr. Hooper, Assistant Director, Division of International
Finance, Board of Governors
Mr. Rosine, Senior Economist, Division of Research and
Statistics, Board of Governors
Mr. Fisher, Economist, Division of Monetary Affairs,
Board of Governors
Ms. Low, Open Market Secretariat Assistant, Division of
Monetary Affairs, Board of Governors
Messrs. J. Davis, T. Davis, Lang, Rolnick, and
Rosenblum, Senior Vice Presidents, Federal Reserve
Banks of Cleveland, Kansas City, Philadelphia,
Minneapolis, and Dallas, respectively
Mr. McNees, Vice President, Federal Reserve Bank
of Boston
Mr. Thornton, Assistant Vice President, Federal Reserve
Bank of St. Louis
Ms. Krieger, Manager, Open Market Operations,
Federal Reserve Bank of New York
In the agenda for this meeting, it was reported that advices of
the election of the following members and alternate members of the Federal
Open Market Committee for the period commencing January 1, 1991, and ending
December 31, 1991, had been received and the named individuals had executed
their oaths of office.
The elected members and alternate members were as follows:
E. Gerald Corrigan, President of the Federal Reserve Bank of New York, with
James H. Oltman, First Vice President of the Federal Reserve Bank of
New York, as alternate;
Robert P. Black, President of the Federal Reserve Bank of Richmond,
with Richard F. Syron, President of the Federal Reserve Bank of
Boston, as alternate;
Silas Keehn, President of the Federal Reserve Bank of Chicago, with
W. Lee Hoskins, President of the Federal Reserve Bank of Cleveland,
as alternate;
Robert P. Forrestal, President of the Federal Reserve Bank of Atlanta, with
Thomas C. Melzer, President of the Federal Reserve Bank of St. Louis,
as alternate;
1.
Attended portion of meeting relating to the Committe's discussion
of the economic outlook and its longer-run objectives for monetary
and debt aggregates.
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Thomas M. Hoenig, President of the Federal Reserve Bank of Kansas City,
with Gary H. Stern, President of the Federal Reserve Bank of
Minneapolis, 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 December 31, 1992,
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, they would cease to have any official connection with the Federal
Open Market Committee:
Alan Greenspan
E. Gerald Corrigan
Chairman
Vice Chairman
Donald L. Kohn
Normand R. V. Bernard
Joseph R. Coyne
Gary P. Gillum
J. Virgil Mattingly, Jr.
Ernest T. Patrikis
Michael J. Prell
Edwin M. Truman
Secretary and Economist
Deputy Secretary
Assistant Secretary
Assistant Secretary
General Counsel
Deputy General Counsel
Economist
Economist
Anatol B. Balbach, John M. Davis,
Richard G. Davis, Thomas E. Davis,
David E. Lindsey, Alicia H. Munnell,
Larry J. Promisel, Charles J. Siegman,
Thomas D. Simpson, and David J. Stockton,
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 Committee after December 31,
1992.
By unanimous vote, Peter D. Sternlight and William J. McDonough
were selected to serve at the pleasure of the Committee in the capacities
of Manager for Domestic Operations, System Open Market Account, and Manager
for Foreign Operations, System Open Market Account, respectively, on the
understanding that their selection was subject to their being satisfactory
to the Federal Reserve Bank of New York.
Secretary's note: Advice subsequently was received
that the selections indicated above were satisfactory
to the board of directors of the Federal Reserve Bank
of New York.
Secretary's note: On January 15, 1992, the continuing
rules, regulations, authorizations, and other instruments
of the Committee listed below had been distributed with
the advice that, in accordance with procedures approved
by the Committee, they were being called to the
Committee's attention before the February 4-5 organiza
tion meeting to give members an opportunity to raise any
questions they might have concerning them. Members were
asked to indicate if they wished to have any of the
instruments in question placed on the agenda for con
sideration at this meeting and no requests for such
consideration were received. Accordingly, all of the
instruments remained in effect in their existing forms.
1.
Procedures for allocation of securities in the
System Open Market Account.
2.
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.
3.
Resolution of FOMC to provide for the continued
operation of the Committee during an emergency;
Resolution of FOMC authorizing certain actions by
Federal Reserve Banks during an emergency.
4.
Resolution relating to examinations of the System
Open Market Account.
5.
Guidelines for the conduct of System operations in
Federal agency issues.
6. Regulation relating to Open Market Operations of
Federal Reserve Banks.
7.
Program for Security of FOMC Information.
8.
Federal Open Market Committee Rules.
By unanimous vote, the Authorization for Domestic Open Market
Operations shown below was reaffirmed:
AUTHORIZATION FOR DOMESTIC OPEN MARKET OPERATIONS
Reaffirmed February 4, 1992
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 obliga
tions 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 international 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 $8.0 billion
during the period commencing with the opening of business on the day
following such meeting and ending with the close of business on the day
of the next such meeting;
(b) When appropriate, 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 maturities 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 within 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; provided that the
aggregate amount of bankers acceptances held at any one time shall not
exceed $100 million;
(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 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 individual
dealers; provided that in the event Government securities or agency
issues covered by any such agreement are not repurchased 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. In order to ensure the effective conduct of open market operations,
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. In order to ensure the effective conduct of open market operations,
while assisting in the provision of short-term investments for foreign
and international accounts maintained at the Federal Reserve Bank of New
York, the Federal Open Market Committee authorizes and directs the
Federal Reserve Bank of New York (a) for System Open Market Account, to
sell U. S. Government securities to such foreign and international
accounts on the bases set forth in paragraph l(a) under agreements
providing for the resale by such accounts of those securities within 15
calendar days on terms comparable to those available on such trans
actions in the market; and (b) for New York Bank account, when
appropriate, to undertake with dealers, subject to the conditions imposed
on purchases and sales of securities in paragraph 1(c), repurchase
agreements in U. S. Government and agency securities, and to arrange
corresponding sale and repurchase agreements between its own account and
foreign and international accounts maintained at the Bank. Transactions
undertaken with such accounts under the provisions of this paragraph may
provide for a service fee when appropriate.
By unanimous vote, the Authorization for Foreign Currency
Operations shown below was reaffirmed:
AUTHORIZATION FOR FOREIGN CURRENCY OPERATIONS
Reaffirmed February 4, 1992
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, and in
conformity with such procedural instructions as the Committee may issue
from time to time:
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.
Treasury, with the U. S. Exchange Stabilization Fund established by
Section 10 of the Gold Reserve Act of 1934, with foreign monetary
authorities, with the Bank for International Settlements, and with other
international financial institutions:
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 balances of, and to have outstanding forward contracts to
receive or to deliver, the foreign currencies listed in paragraph A
above.
C. To draw foreign currencies and to permit foreign banks to draw
dollars under the reciprocal currency arrangements 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.
D. To maintain an overall open position in all foreign currencies
not exceeding $25.0 billion. For this purpose, the overall open position
in all foreign currencies is defined as the sum (disregarding signs) of
net positions in individual currencies. The net position in a single
foreign currency is defined as holdings of balances in that currency,
plus outstanding contracts for future receipt, minus outstanding
contracts for future delivery of that currency, i.e., as the sum of these
elements with due regard to sign.
2. The Federal Open Market Committee directs the Federal Reserve Bank
of New York to maintain reciprocal currency arrangements ("swap"
arrangements) for the 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
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
Amount of arrangement
(millions of dollars
equivalent)
250
1,000
2,000
250
3,000
2,000
6,000
3,000
5,000
700
500
250
300
4,000
600
1,250
Any changes in the terms of existing swap arrangements, and the proposed
terms of any new arrangements that may be authorized, shall be referred
for review and approval to the Committee.
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3. All transactions in foreign currencies undertaken under paragraph
l.A above shall, unless otherwise expressly authorized by the Committee,
be at prevailing market rates. For the purpose of providing an
investment return on System holdings of foreign currencies, or for the
purpose of adjusting interest rates paid or received in connection with
swap drawings, transactions with foreign central banks may be undertaken
at non-market exchange rates.
4. It shall be the normal 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.
5. Foreign currency holdings shall be invested insofar as practicable,
considering needs for minimum working balances. Such investments shall
be in liquid form, and generally have no more than 12 months remaining to
maturity. When appropriate in connection with arrangements to provide
investment facilities for foreign currency holdings, U. S. Government
securities may be purchased from foreign central banks under agreements
for repurchase of such securities within 30 calendar days.
6. All operations undertaken pursuant to the preceding paragraphs shall
be reported promptly to the Foreign Currency Subcommittee and the
Committee. The Foreign Currency Subcommittee consists of the Chairman
and Vice Chairman of the Committee, the Vice Chairman of the Board of
Governors, and such other member of the Board as the Chairman may
designate (or in the absence of members of the Board serving on the
Subcommittee, other Board Members designated by the Chairman as
alternates, and in the absence of the Vice Chairman of the Committee, his
alternate). Meetings of the Subcommittee shall be called at the request
of any member, or at the request of the Manager for Foreign Operations,
for the purposes of reviewing recent or contemplated operations and of
consulting with the Manager on other matters relating to his
responsibilities. At the request of any member of the Subcommittee,
questions arising from such reviews and consultations shall be referred
for determination to the Federal Open Market Committee.
7.
The Chairman 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 Treasury;
B. To keep the Secretary of the Treasury fully advised concerning
System foreign currency operations, and to consult with the Secretary on
policy matters relating to foreign currency operations;
C. From time to time, to transmit appropriate reports and
information to the National Advisory Council on International Monetary
and Financial Policies.
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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 3.G(1) of the
Board of Governors' Statement of Procedure with Respect to Foreign
Relationships of Federal Reserve Banks dated January 1, 1944.
By unanimous vote, the Foreign Currency Directive shown below
was reaffirmed:
FOREIGN CURRENCY DIRECTIVE
Reaffirmed February 4, 1992
1. System operations in foreign currencies shall generally be directed
at countering disorderly market conditions, provided that market exchange
rates for the U. S. dollar reflect actions and behavior consistent with
the IMF Article IV, Section 1.
2. To achieve this end the System shall:
A. Undertake spot and forward purchases and sales of foreign
exchange.
B. Maintain reciprocal currency ("swap") arrangements with selected
foreign central banks and with the Bank for International Settlements.
C. Cooperate in other respects with central banks of other countries
and with international monetary institutions.
3. Transactions may also be undertaken:
A. To adjust System balances in light of probable future needs for
currencies.
B. To provide means for meeting System and Treasury commitments in
particular currencies, and to facilitate operations of the Exchange
Stabilization Fund.
C. For such other purposes as may be expressly authorized by the
Committee.
4. System foreign currency operations shall be conducted:
A. In close and continuous consultation and cooperation with the
United States Treasury;
B. In cooperation, as appropriate, with foreign monetary
authorities; and
C. In a manner consistent with the obligations of the United States
in the International Monetary Fund regarding exchange arrangements under
the IMF Article IV.
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By unanimous vote, the Procedural Instructions with respect to
Foreign Currency Operations shown below were reaffirmed:
PROCEDURAL INSTRUCTIONS WITH RESPECT TO
FOREIGN CURRENCY OPERATIONS
Reaffirmed February 4, 1992
In conducting operations pursuant to the authorization and
direction of the Federal Open Market Committee as set forth in the
Authorization for Foreign Currency Operations and the Foreign Currency
Directive, the Federal Reserve Bank of New York, through the Manager for
Foreign Operations, System Open Market Account, shall be guided by the
following procedural understandings with respect to consultations and
clearance with the Committee, the Foreign Currency Subcommittee, and the
Chairman of the Committee. All operations undertaken pursuant to such
clearances shall be reported promptly to the Committee.
1. The Manager for Foreign Operations shall clear with the Subcommittee
(or with the Chairman, if the Chairman believes that consultation with
the Subcommittee is not feasible in the time available):
A. Any operation that would result in a change in the System's
overall open position in foreign currencies exceeding $300 million on any
day or $600 million since the most recent regular meeting of the
Committee.
B. Any operation that would result in a change on any day in the
System's net position in a single foreign currency exceeding $150
million, or $300 million when the operation is associated with repayment
of swap drawings.
C. Any
trading in a
the System's
specified in
operation that might generate a substantial volume of
particular currency by the System, even though the change in
net position in that currency might be less than the limits
1.B.
D. Any swap drawing proposed by a foreign bank not exceeding the
larger of (i) $200 million or (ii) 15 percent of the size of the swap
arrangement.
2. The Manager for Foreign Operations shall clear with the Committee
(or with the Subcommittee, if the Subcommittee believes that consultation
with the full Committee is not feasible in the time available, or with
the Chairman, if the Chairman believes that consultation with the
Subcommittee is not feasible in the time available):
A. Any operation that would result in a change in the System's
overall open position in foreign currencies exceeding $1.5 billion since
the most recent regular meeting of the Committee.
B. Any swap drawing proposed by a foreign bank exceeding the larger
of (i) $200 million or (ii) 15 percent of the size of the swap
arrangement.
3. The Manager for Foreign Operations shall also consult with the Sub
committee or the Chairman about proposed swap drawings by the System, and
about any operations that are not of a routine character.
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By unanimous vote, the Committee approved a decrease from $10
billion to $5 billion, effective February 4, 1992, in the amount of
eligible foreign currencies that the Federal Reserve would be prepared
to warehouse for the U. S. Treasury and the Exchange Stabilization Fund.
By unanimous vote, the minutes of actions taken at the meeting
of the Federal Open Market Committee held on December 17, 1991, were
approved.
By unanimous vote, System open market transactions in foreign
currencies during the period December 17, 1991, through February 4,
1992, were ratified.
By unanimous vote, System open market transactions in
government securities and federal agency obligations during the period
December 17, 1991, through February 4, 1992, were ratified.
By unanimous vote, the following longer-run policy for 1992 was
approved by the Committee:
The Federal Open Market Committee seeks monetary
and financial conditions that will foster price sta
bility and promote sustainable growth in output. In
furtherance of these objectives, the Committee at this
meeting established ranges for growth of M2 and M3 of
2-1/2 to 6-1/2 percent and 1 to 5 percent, respect
ively, measured from the fourth quarter of 1991 to the
fourth quarter of 1992. The monitoring range for
growth of total domestic nonfinancial debt was set at
4-1/2 to 8-1/2 percent for the year. With regard to
M3, the Committee anticipated that the ongoing
restructuring of depository institutions would continue
to depress the growth of this aggregate relative to
spending and total credit. The behavior of the
monetary aggregates will continue to be evaluated in
the light of progress toward price level stability,
movements in their velocities, and developments in the
economy and financial markets.
By unanimous vote, 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:
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The information reviewed at this meeting suggests
that economic activity has remained sluggish. Total
nonfarm payroll employment was little changed in
December, and the civilian unemployment rate rose to
7.1 percent. Industrial production fell slightly in
November and December, partly reflecting a sizable drop
in motor vehicle assemblies. Consumer spending has
been weak on balance in recent months amid continuing
indications of depressed consumer confidence and
essentially no growth in disposable income. Demand for
business equipment has been uneven, while nonresiden
tial construction has remained in a steep decline.
Single-family housing starts continued to recover in
December. The nominal U.S. merchandise trade deficit
narrowed in November, and for October-November combined
the trade balance improved substantially from the
third-quarter rate. Wage and price increases have
continued to trend downward.
Short-term interest rates have declined appre
ciably since the Committee meeting on December 17,
while longer-term rates have registered mixed changes.
The Board of Governors approved a reduction in the
discount rate from 4-1/2 to 3-1/2 percent on December
20. In foreign exchange markets, the trade-weighted
value of the dollar in terms of the other G-10
currencies rose slightly on balance over the inter
meeting period.
After accelerating somewhat in the fourth quarter,
M2 and M3 slowed in January, partly reflecting tempo
rary distortions around year-end. For the year 1991,
the expansion of both M2 and M3 is estimated to have
been at rates a little above the lower ends of the
Committee's ranges. Growth of total domestic nonfinan
cial debt appears to have been marginally above the
lower end of the Committee's monitoring range for the
year.
The Federal Open Market Committee seeks monetary
and financial conditions that will foster price sta
bility and promote sustainable growth in output. In
furtherance of these objectives, the Committee at this
meeting established ranges for growth of M2 and M3 of
2-1/2 to 6-1/2 percent and 1 to 5 percent, respect
ively, measured from the fourth quarter of 1991 to the
fourth quarter of 1992. The monitoring range for
growth of total domestic nonfinancial debt was set at
4-1/2 to 8-1/2 percent for the year. With regard to
M3, the Committee anticipated that the ongoing
restructuring of depository institutions would continue
to depress the growth of this aggregate relative to
spending and total credit. The behavior of the
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monetary aggregates will continue to be evaluated in
the light of progress toward price level stability,
movements in their velocities, and developments in the
economy and financial markets.
In the implementation of policy for the immediate
future, the Committee seeks to maintain the existing
degree of pressure on reserve positions. In the
context of the Committee's long-run objectives for
price stability and sustainable economic growth, and
giving careful consideration to economic, financial,
and monetary developments, slightly greater reserve
restraint might or slightly lesser reserve restraint
would be acceptable in the intermeeting period. The
contemplated reserve conditions are expected to be
consistent with growth of M2 and M3 over the period
from December through March at annual rates of about 3
and 1-1/2 percent, respectively.
It was agreed that the next meeting of the Committee would be
held on Tuesday, March 31, 1992.
The meeting adjourned.
Secretary
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