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Meeting of the Federal Open Market Committee
March 28, 1989
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, March 28, 1989 at 9:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Ms.
Mr.
Greenspan, Chairman
Corrigan, Vice Chairman
Angell
Guffey
Heller
Johnson
Keehn
Kelley
LaWare
Melzer
Seger
Syron
Messrs. Boykin, Hoskins, and Stern, Alternate Members
of the Federal Open Market Committee
Messrs. Black, Forrestal, and Parry, Presidents of the Federal
Reserve Banks of Richmond, Atlanta, and San Francisco,
respectively
Kohn, Secretary and Economist
Bernard, Assistant Secretary
Gillum, Deputy Assistant Secretary
Mattingly, General Counsel
Patrikis, Deputy General Counsel
Prell, Economist
Truman, Economist
Messrs. Balbach, R. Davis, T. Davis, Lindsey,
Ms. Munnell, Messrs. Promisel, Scheld,
Siegman, and Simpson, 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. Coyne, Assistant to the Board of Governors
Mr. Ettin, Deputy Director, Division of Research and
Statistics, Board of Governors
Mr. Stockton, Assistant Director, Division of Research
and Statistics, Board of Governors
Mr. Keleher, Assistant to Governor Johnson, Office of
Board Members, Board of Governors
Mr. Wajid, Assistant to Governor Heller, Office of
Board Members, Board of Governors
Ms. Low, Open Market Secretariat Assistant, Division of
Monetary Affairs, Board of Governors
Mr. Stone, First Vice President, Federal Reserve
Bank of Philadelphia
Messrs. Beebe, J. Davis, Lang, Rolnick, Rosenblum, and
Ms. Tschinkel, Senior Vice Presidents, Federal Reserve
Banks of San Francisco, Cleveland, Philadelphia,
Minneapolis, Dallas, and Atlanta, respectively
Mr. Cook, Vice President, Federal Reserve Bank of
Richmond
Mr. Guentner, Assistant Vice President, 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 March 1, 1989, and ending
December 31, 1989, had been received and that those 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;
Richard F. Syron, President of the Federal Reserve Bank of Boston, with
Edward G. Boehne, President of the Federal Reserve Bank of Philadelphia,
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;
Thomas C. Melzer, President of the Federal Reserve Bank of St. Louis, with
Robert H. Boykin, President of the Federal Reserve Bank of Dallas,
as alternate;
Roger Guffey, President of the Federal Reserve Bank of Kansas City, with
Gary H. Stern, President of the Federal Reserve Bank of Minneapolis,
as alternate
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3/28/89
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, 1989, 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
Anatol B. Balbach, Richard G. Davis,
Thomas E. Davis, David E. Lindsey,
Alicia H. Munnell, Larry J. Promisel,
Karl A. Scheld, Charles J. Siegman,
Thomas D. Simpson, and Lawrence Slifman
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 adjourn
ment of the first meeting of the Committee after December 31, 1989.
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 under
standing that their selection was subject to their being satisfactory to the
Federal Reserve Bank of New York.
Secretary's note: Advice was subseqently received
that the selections indicated above were satisfactory
to the board of directors of the Federal Reserve Bank
of New York.
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3/28/89
Secretary's note: On March 13, 1989, 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 March 28 organization meeting to
give members an opportunity to raise any questions they
might have concerning them. Members were asked to so
indicate if they wished to have any of the instruments
in question placed on the agenda for consideration at
this meeting, and no such requests 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.
Resolutions providing for the continued operation of the
Committee and for certain actions by the 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.
Agreement with the U.S. Treasury to Warehouse Foreign
Currencies.
9.
Program for Security of FOMC Information.
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3/28/89
By unanimous vote the Authorization for Domestic Open Market Operations
shown below was reaffirmed:
AUTHORIZATION FOR DOMESTIC OPEN MARKET OPERATIONS
Reaffirmed March 28, 1989
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 obligations
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 $6.0 billion during the period com
mencing 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
3/28/89
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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. Govern
ment 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 com
parable to those available on such transactions 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 l(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 pro
visions 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 March 28, 1989
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:
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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 $12.0 billion. For this purpose, the overall open position in all
foreign currencies is defined as the sum (disregarding signs) of net posi
tions in individual currencies. The net position in a single foreign
currency is defined as holdings of balances in that currency, plus out
standing 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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3/28/89
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.
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 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.
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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 March 28, 1989
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:
In close and continuous consultation and cooperation with the United
A.
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 Aticle 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 March 28, 1989
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 lB.
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 arrange
ment.
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 Chair
man, 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.
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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 minutes of actions taken at the meeting of
the Federal Open Market Committee held on February 7-8, 1989, were approved.
By unanimous vote, System Open Market transactions in foreign
currencies during the period February 8 through March 27, 1989, were ratified
By unanimous vote, System open market transactions in government
securities and agency obligations during the period February 8 through
March 27, 1989, were ratified.
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
dollar limit on intermeeting changes in System Account holdings of U.S.
government and federal agency securities for the intermeeting period ending
May 16, 1989.
With Ms. Seger dissenting, the Federal Reserve Bank of New York
was authorized and directed, until otherwise directed by the Committee, to
execute transactions in the System Account in accordance with the following
policy directive:
The information reviewed at this meeting suggests
that activity in the nonfarm economy has expanded
appreciably further in the current quarter. After
strong gains in the fourth quarter, total nonfarm
payroll employment rose markedly further in January
and February. The civilian unemployment rate fell
considerably to 5.1 percent in February. Industrial
production was unchanged in February after rising
substantially over the previous several months. After
a weather-related surge in January, housing starts
fell in February to a level somewhat below their
average in the fourth quarter. Growth in consumer
spending moderated in January and February. Recent
indicators of business capital spending suggest a
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nominal U.S. merchandise trade deficit was larger in
the fourth quarter than in the third quarter; the
preliminary estimate of the deficit for January was
smaller than the average for the fourth quarter. The
latest information on prices suggests some pickup in
inflation from recent trends.
Interest rates in both short- and long-term
markets have risen considerably since the Committee
meeting in early February. On February 24 the Federal
Reserve Board approved an increase in the discount
rate from 6-1/2 to 7 percent. In foreign exchange
markets, the trade-weighted value of the dollar in
terms of the other G-10 currencies rose somewhat on
balance over the intermeeting period.
Growth of M2 and M3 strengthened in February and
apparently picked up further in March; over the first
quarter such expansion was about in line with
Committee expectations. M1 appears to have declined
marginally since December.
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
international transactions. In furtherance of these
objectives, the Committee at its meeting in February
established ranges for growth of M2 and M3 of 3 to 7
percent and 3-1/2 to 7-1/2 percent, respectively,
measured from the fourth quarter of 1988 to the fourth
quarter of 1989. The monitoring range for growth of
total domestic nonfinancial debt was set at 6-1/2 to
10-1/2 percent for the year. The behavior of the
monetary aggregates will continue to be evaluated in
the light of movements in their velocities, develop
ments in the economy and financial markets, and
progress toward price level stability.
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 indications of inflationary pressures, the
strength of the business expansion, the behavior of
the monetary aggregates, and developments in foreign
3/28/89
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exchange and domestic financial markets, somewhat
greater reserve restraint would, or slightly lesser
reserve restraint might, be acceptable in the inter
meeting period. The contemplated reserve conditions
are expected to be consistent with growth of M2 and M3
over the period from March through June at annual
rates of about 3 and 5 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 8 to 12
percent.
It was agreed that the next meeting of the Committee would be
held on Tuesday, May 16, 1989.
The meeting adjourned.
Secretary
@FedFRASER