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Meeting of the Federal Open Market Committee
February 6-7, 1990
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 6, 1990, at 2:30 p.m. and was
continued on Wednesday, February 7, 1990, at 9:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Ms.
Mr.
Greenspan, Chairman
Corrigan, Vice Chairman
Angell
Boehne
Boykin
Hoskins
Johnson
Kelley
LaWare
Seger
Stern
Messrs. Black, Forrestal, Keehn, and Parry, Alternate
Members of the Federal Open Market Committee
Messrs. Guffey, Melzer, and Syron, Presidents of the
Federal Reserve Banks of Kansas City, St. Louis,
and Boston, respectively
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Kohn, Secretary and Economist
Bernard, Assistant Secretary
Gillum, Deputy Assistant Secretary
Mattingly, General Counsel
Patrikis , Deputy General Counsel
Prell, Economist
Truman, Economist
Messrs. J. Davis, R. Davis, Lang, Lindsey, Promisel,
Rolnick, Rosenblum, Siegman, Simpson, and
Stockton, Associate Economists
Mr. Sternlight, Manager for Domestic Operations,
System Open Market Account
Mr. Cross, Manager for Foreign Operations,
System Open Market Account
1.
Attended Wednesday session only.
Mr. Coyne, Assistant to the Board, Board of Governors
Mr. Keleher, Assistant to Governor Johnson, Office of
Board Members, Board of Governors
Mr. Ettin, Deputy Director, Division of Research and
Statistics, Board of Governors
Mr. Slifman, Associate Director, Division of Research
and Statistics, Board of Governors
Messrs. Reinhart and Wilcox, Economists, Divisions of
Monetary Affairs and Research and Statistics,
respectively, Board of Governors
Ms. Low, Open Market Secretariat Assistant, Division of
Monetary Affairs, Board of Governors
Messrs. Balbach, Beebe, Broaddus, T. Davis, Scheld, and
Ms. Tschinkel, Senior Vice Presidents, Federal Reserve
Banks of St. Louis, San Francisco, Richmond,
Kansas City, Chicago, and Atlanta, respectively
Mr. McNees, Vice President, Federal Reserve Bank
of Boston
Ms. Meulendyke, 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, 1990, and ending
December 31, 1990, 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;
Edward G. Boehne, President of the Federal Reserve Bank of Philadelphia,
with Robert P. Black, President of the Federal Reserve Bank of
Richmond, as alternate;
W. Lee Hoskins, President of the Federal Reserve Bank of Cleveland, with
Silas Keehn, President of the Federal Reserve Bank of Chicago,
as alternate;
Robert H. Boykin, President of the Federal Reserve Bank of Dallas, with
Robert P. Forrestal, President of the Federal Reserve Bank of Atlanta,
as alternate;
2.
Attended portion of meeting relating to the Committee's discussion
of the economic outlook and its longer-run objectives for monetary
and debt aggregates.
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Gary H. Stern, President of the Federal Reserve Bank of Minneapolis, with
Robert T. Parry, President of the Federal Reserve Bank of San
Francisco, 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, 1990,
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
Gary P. Gillum
J. Virgil Mattingly, Jr.
Ernest T. Patrikis
Michael J. Prell
Edwin M. Truman
Secretary and Economist
Assistant Secretary
Deputy Assistant Secretary
General Counsel
Deputy General Counsel
Economist
Economist
John M. Davis, Richard G. Davis,
Richard W. Lang, David E. Lindsey,
Larry J. Promisel, Arthur J. Rolnick,
Harvey Rosenblum, 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,
1990.
By unanimous vote, Peter D. Sternlight and Sam Y. Cross 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 was subsequently 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 18, 1990, 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 6-7 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. The only requests related to
those under item 3 below, "Resolution of FOMC to provide
for the continued operation of the Committee during an
emergency" and "Resolution of FOMC authorizing certain
actions by Federal Reserve Banks during an emergency".
Accordingly, all of the other instruments (items 1, 2,
and 4 through 9 below) 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. Rules of Organization, Rules Regarding Availability
of Information, and Rules of Procedure.
8. Memorandum on Agreement with the U.S. Treasury to
Warehouse Foreign Currencies.
9. Program for Security of FOMC Information.
By unanimous vote, paragraph 1(a) of the Authorization for
Domestic Open Market Operations was amended to raise from $6 billion to
$8 billion the limit on intermeeting changes in System account holdings
of U.S. government and federal agency securities.
With this amendment,
the authorization reads as follows:
AUTHORIZATION FOR DOMESTIC OPEN MARKET OPERATIONS
Amended February 6, 1990
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 1(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 6, 1990
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 $21.0 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:
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Foreign bank
Amount of arrangement
(millions of dollars
equivalent)
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
Regular
Special
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
*
250
1,000
2,000
250
3,000
2,000
6,000
3,000
5,000
700
125 *
500
250
300
4,000
600
1,250
Facility with maturity date of February 15, 1990.
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.
3. All transactions in foreign currencies undertaken under paragraph
1.A above shall, unless otherwise expressly authorized by the Committee,
be at prevailing market rates. For the purpose of providing an invest
ment 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.
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.
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By unanimous vote, the Foreign Currency Directive shown below
was reaffirmed:
FOREIGN CURRENCY DIRECTIVE
Reaffirmed February 6, 1990
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 6, 1990
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 operation that might generate a substantial volume of
trading in a particular currency by the System, even though the change
in the System's net position in that currency might be less than the
limits specified in 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.
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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.
By unanimous vote, the Resolution of Federal Open Market
Committee to provide for the continued operation of the Committee during
an emergency and the Resolution of the Federal Open Market Committee
authorizing certain actions by Federal Reserve Banks during an emergency
were amended to read as follows:
RESOLUTION OF FEDERAL OPEN MARKET COMMITTEE
TO PROVIDE FOR THE CONTINUED OPERATION OF
THE COMMITTEE DURING AN EMERGENCY
Amended February 6, 1990
In the event of a national security emergency, if the Secretary
or Assistant Secretary of the Federal Open Market Committee (or in the
event of the unavailability of both of them, the Secretary or Acting
Secretary of the Board of Governors of the Federal Reserve System)
certifies that as a result of the emergency the available number of
regular members and regular alternates of the Federal Open Market
Committee is less than seven, all powers and functions of the said
Committee shall be performed and exercised by, and authority to exercise
such powers and functions is hereby delegated to, an Interim Committee,
subject to the following terms and conditions:
Such Interim Committee shall consist of: seven members,
comprising each regular member and regular alternate of the Federal Open
Market Committee then available, together with an additional number,
sufficient to make a total of seven, which shall be made up in the
following order or priority from those available: (1) each alternate at
large (as defined below); (2) each President of a Federal Reserve Bank
not then either a regular member or an alternate; (3) each First Vice
President of a Federal Reserve Bank; provided that (a) within each of
the groups referred to in clauses (1), (2), and (3) priority of
selection shall be in numerical order according to the numbers of the
Federal Reserve Districts, (b) the President and the First Vice
President of the same Federal Reserve Bank shall not serve at the same
time as members of the Interim Committee, and (c) whenever a regular
member or regular alternate of the Federal Open Market Committee or a
person having a higher priority as indicated in clauses (1), (2), and
(3) becomes available he shall become a member of the Interim Committee
in the place of the person then on the Interim Committee having the
lowest priority. The Interim Committee is hereby authorized to take
action by majority vote of those present whenever one or more members
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thereof are present, provided that an affirmative vote for the action
taken is cast by at least one regular member, regular alternate, or
President of a Federal Reserve Bank. The delegation of authority and
other procedures set forth above shall be effective only during such
period or periods as there are available less than a total of seven
regular members and regular alternates of the Federal Open Market
Committee.
As used herein the term "regular member" refers to a member of
the Federal Open Market Committee duly appointed or elected in
accordance with existing law; the term "regular alternate" refers to an
alternate of the Committee duly elected in accordance with existing law
and serving in the absence of the regular member for whom he was
elected; and the term "alternate at large" refers to any other duly
elected alternate of the Committee at a time when the member in whose
absence he was elected to serve is available.
RESOLUTION OF FEDERAL OPEN MARKET COMMITTEE AUTHORIZING
CERTAIN ACTIONS BY FEDERAL RESERVE BANKS DURING AN EMERGENCY
Amended February 6, 1990
The Federal Open Market Committee hereby authorizes each
Federal Reserve Bank to take any or all of the actions set forth below
during and following a national security emergency when such Federal
Reserve Bank finds itself unable after reasonable efforts to be in
communication with the Federal Open Market Committee (or with the
Interim Committee acting in lieu of the Federal Open Market Committee)
or when the Federal Open Market Committee (or such Interim Committee) is
unable to function. Action(s) under this authorization will be taken by
a Federal Reserve Bank only after reasonable efforts have been made to
consult with the Chairman of the Committee or if the latter is not
available with the Vice Chairman of the Committee or if both the
Chairman and the Vice Chairman are not available, with whatever member
of the Board of Governors may be available to serve as Acting Chairman
as provided for by the Committee's Rules of Organization. In addition,
to the extent feasible, the action(s) should be coordinated with other
Reserve Banks with which the Reserve Bank is able to communicate.
(1) Whenever it deems it necessary in the light of economic
conditions and the general credit situation then prevailing (after
taking into account the possibility of providing necessary credit
through advances secured by direct obligations of the United States
under the last paragraph of section 13 of the Federal Reserve Act), such
Federal Reserve Bank may purchase and sell obligations of the United
States for its own account, either outright or under repurchase
agreement, from and to banks, dealers or other holders of such
obligations.
(2) Such Federal Reserve Bank may engage in operations of the types
specified in the Committee's authorization for System foreign currency
operations when requested to do so by an authorized official of the U.S.
Treasury Department; provided, however, that such Bank shall take all
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steps practicable at the time to insure as far as possible that, in
light of the information available on other System foreign currency
operations, its own operations do not result in the aggregate in
breaching any of the several dollar limits specified in the
authorization.
Authority to take the actions set forth shall be effective
only until such time as the Federal Reserve Bank is able again to
establish communications with the Federal Open Market Committee (or the
Interim Committee), and such Committee is then functioning.
By unanimous vote, the minutes of actions taken at the meeting
of the Federal Open Market Committee held on December 18-19, 1989, were
approved.
By unanimous vote, System open market transactions in foreign
currencies during the period December 19, 1989, through February 6,
1990, were ratified.
By unanimous vote, System open market transactions in
government securities and federal agency obligations during the period
December 19, 1989, through February 6, 1990, were ratified.
With Ms. Seger and Messrs. Hoskins and Stern dissenting, the
following longer-run policy for 1990 was approved by the Committee:
The Federal Open Market Committee seeks monetary
and financial conditions that will foster price
stability, promote growth in output on a sustainable
basis, and contribute to an improved pattern of inter
national transactions. In furtherance of these
objectives, the Committee at this meeting established
ranges for growth of M2 and M3 of 3 to 7 percent and
2-1/2 to 6-1/2 percent respectively, measured from the
fourth quarter of 1989 to the fourth quarter of 1990.
The monitoring range for growth of total domestic non
financial debt was set at 5 to 9 percent for the year.
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.
With Ms. Seger and Messrs. Boykin and Hoskins dissenting from
the operational paragraph on policy implementation in the period
immediately ahead, 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 economic activity is continuing to expand despite
weakness in the industrial sector. Total nonfarm
payroll employment increased substantially in January
after growing at a reduced pace on average in previous
months; a surge in the service-producing sector and a
weather-related rebound in construction were only
partly offset by a large decline in the manufacturing
sector. The civilian unemployment rate was unchanged
at 5.3 percent. Partial data suggest that industrial
production in January was appreciably below its
average in the fourth quarter. Adjusted for
inflation, strong gains in consumer spending on
services in the fourth quarter offset declines in
consumer purchases of goods, especially motor
vehicles. Unusually cold weather depressed housing
starts appreciably in December, and residential
construction in the fourth quarter was little changed
from its third-quarter level. Business capital
spending, adjusted for inflation, declined in the
fourth quarter as a result of lower expenditures on
motor vehicles and strike activity in the aircraft
industry; spending on other types of capital goods was
strong, however, and new orders for equipment picked
up toward the end of the year. The nominal U.S.
merchandise trade deficit widened in October-November
from the third-quarter rate. Consumer prices had
risen somewhat more rapidly toward the end of 1989,
and prices of food and energy apparently increased
substantially further in January. The latest data on
labor compensation suggest no significant change in
prevailing trends.
Interest rates have risen in intermediate- and
long-term debt markets since the Committee meeting on
December 18-19; in short-term markets, the federal
funds rate has declined, and other short-term rates
show mixed changes over the period. In foreign
exchange markets, the trade-weighted value of the
dollar in terms of the other G-10 currencies declined
further over the intermeeting period; most of the
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depreciation was against the German mark and related
European currencies, and there was little change
against the yen.
Growth of M2 slowed in January, almost entirely
reflecting a drop in transaction deposits. Growth of
M3 also slowed in January as assets of thrift institu
tions and their associated funding needs apparently
continued to contract. For the year 1989, M2 expanded
at a rate a little below the middle of the Committee's
annual range, and M3 grew at a rate slightly below the
lower bound of its annual range.
The Federal Open Market Committee seeks monetary
and financial conditions that will foster price
stability, promote growth in output on a sustainable
basis, and contribute to an improved pattern of inter
national transactions. In furtherance of these
objectives, the Committee at this meeting established
ranges for growth of M2 and M3 of 3 to 7 percent and
2-1/2 to 6-1/2 percent respectively, measured from the
fourth quarter of 1989 to the fourth quarter of 1990.
The monitoring range for growth of total domestic non
financial debt was set at 5 to 9 percent for the year.
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.
In the implementation of policy for the immediate
future, the Committee seeks to maintain the existing
degree of pressure on reserve positions. Taking
account of progress toward price stability, the
strength of the business expansion, the behavior of
the monetary aggregates, and developments in foreign
exchange and domestic financial markets, slightly
greater reserve restraint 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 7 and 3-1/2 percent respectively. The
Chairman may call for Committee consultation if it
appears to the Manager for Domestic Operations that
reserve conditions during the period before the next
meeting are likely to be associated with a federal
funds rate persistently outside a range of 6 to 10
percent.
-17-
It was agreed that the next meeting of the Committee would be
held on Wednesday, March 27, 1990.
The meeting adjourned.
Secretary
Secretary's note: Effective February 16, 1990,
available members of the Committee approved a
recommendation by the Manager for Domestic
Operations to relax temporarily some of the
constraints that apply to collateralized System
loans of government securities to primary dealers.
This action was taken to facilitate the orderly
liquidation of the government securities position
of a troubled primary dealer in such obligations.
In accordance with usual practice, all securities
loans would continue to be collateralized by U.S.
government obligations of greater current market
value.
Votes for this action: Messrs. Greenspan,
Corrigan, Angell, Boehne, Boykin, Hoskins,
Johnson, Kelley, and Stern. Votes against this
action: None. Absent and not voting: Mr. LaWare
and Ms. Seger.
The temporary liberalization of securities
lending terms was terminated effective March 13,
1990.
@FedFRASER