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Meeting of the Federal Open Market Committee
March 28-29, 1983
Minutes of Actions
A meeting of the Federal Open Market Committee was held in
the offices of the Board of Governors of the Federal Reserve System in
Washington, D. C., beginning on Monday, March 28, 1983, at 3:00 p.m. and
continuing on Tuesday, March 29, 1983, at 9:00 a.m.
PRESENT:
Mr. Volcker, Chairman
Mr. Solomon, Vice Chairman
Mr. Gramley
Mr. Guffey
Mr. Keehn
Mr. Martin
Mr. Morris
Mr. Partee
Mr. Rice
Mr. Roberts
Mrs. Teeters
Mr. Wallich
Messrs. Boehne, Boykin, Corrigan, and Mrs. Horn, Alternate
Members of the Federal Open Market Committee
Messrs. Black, and Ford, Presidents of the Federal
Reserve Banks of Richmond, and Atlanta, respectively
Mr. Axilrod, Staff Director and Secretary
Mr. Bernard, Assistant Secretary
Mrs. Steele, Deputy Assistant Secretary
Mr. Oltman, Deputy General Counsel
Mr. Truman, Economist (International)
Messrs. Balbach, R. Davis, T. Davis, Eisenmenger, Ettin,
Prell, Scheld, Siegman, 1/ and Zeisel, Associate
Economists
Mr. Sternlight, Manager for Domestic Operations,
System Open Market Account
Mr. Cross, Manager for Foreign Operations,
System Open Market Account
1/
Attended Monday session only.
3/28-29/83
Mr. Coyne, Assistant to the Board of Governors
Mr. Gemmill, Senior Associate Director, Division of
International Finance, Board of Governors
Mr. Kohn, Associate Director, Division of Research
and Statistics, Board of Governors
Mr. Lindsey, Deputy Associate Director, Division of Research
and Statistics, Board of Governors
Mr. Promisel, 1/ Associate Director, Division of International
Finance, Board of Governors
Mrs. Low, Open Market Secretariat Assistant,
Board of Governors
Mr. Sims, Executive Vice President, Federal Reserve
Bank of San Francisco
Messrs. Burns, J. Davis, Keran, Koch, Mullineaux, and Stern,
Senior Vice Presidents, Federal Reserve Banks of
Dallas, Cleveland, San Francisco, Atlanta, Philadelphia,
and Minneapolis, respectively
Messrs. Broaddus and Soss, Vice Presidents, Federal Reserve Banks
of Richmond and New York
Ms. Joan Lovett, Manager, Securities Department, 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 year commencing March 1, 1983, had been received by
the Secretary and the named individuals had executed their oaths of office.
The elected members and alternate members were as follows:
Frank E. Morris, President of the Federal Reserve Bank of Boston, with
Edward G. Boehne, President of the Federal Reserve Bank of
Philadelphia, as alternate;
Anthony M. Solomon, President of the Federal Reserve Bank of New York, with
Thomas M. Timlen, First Vice President of the Federal Reserve Bank of
New York, as alternate;
1/
Attended Tuesday session only.
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3/28-29/83
Silas Keehn, President of the Federal Reserve Bank of Chicago, with
Karen N. Horn, President of the Federal Reserve Bank of Cleveland,
as alternate;
Theodore H. Roberts, 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
E. Gerald Corrigan, 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 February 29, 1984, 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, as the case might be, they
would cease to have any official connection with the Federal Open Market
Committee:
Paul A. Volcker
Anthony M. Solomon
Chairman
Vice Chairman
Stephen H. Axilrod
Normand R. V. Bernard
Nancy M. Steele
Michael Bradfield
James H. Oltman
James L. Kichline
Edwin M. Truman
Staff Director and Secretary
Assistant Secretary
Deputy Assistant Secretary
General Counsel
Deputy General Counsel
Economist
Economist (International)
Anatol Balbach, Richard G. Davis,
Thomas E. Davis, Robert Eisenmenger,
Edward C. Ettin, Michael J. Prell,
Charles J. Siegman, Karl A. Scheld,
Joseph S. Zeisel
Associate Economists
3/28-29/83
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 Federal Open Market Committee after
February 29, 1984.
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
Federal Reserve Bank of New York.
Consideration was then given to the continuing authorizations of the
Committee, in accordance with the customary practice of reviewing such matters
at the first meeting in March of every year.
Secretary's note:
On March 11, 1983, certain continuing
authorizations of the Committee listed below had been
distributed by the Assistant Secretary with the advice
that, in accordance with procedures approved by the
Committee, they were being called to the Committee's
attention before the March organization meeting to give
members an opportunity to raise any questions they had
concerning them.
It was noted that the Chairman planned
to place on the agenda consideration of an amendment to
the Authorization for Domestic Open Market Operations
and conforming admendments to the Resolution of the FOMC
authorizing certain actions by Federal Reserve Banks
during an emergency and the Regulation relating to Open
Market Operations of Federal Reserve Banks. Members
were asked to indicate if they wished to have any of
the other authorizations in question placed on the
agenda for consideration at this meeting, and no such
requests were received.
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The authorizations in question were as follows:
1.
Procedures for allocation of securities in the
System Open Market Account.
2.
List of Treasury Department officials to whom weekly
reports on open market operations may be sent.
3.
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.
4.
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.
5.
Resolution relating to examinations of the System Open
Market Account.
6.
Guidelines for the conduct of System operations in
Federal agency issues.
7.
Regulation relating to Open Market Operations of Federal
Reserve Banks.
8.
Rules of Organization, Rules Regarding Availability of
Information, and Rules of Procedure.
By unanimous vote the Authorization for Foreign Currency Operations
shown below was reaffirmed:
AUTHORIZATION FOR FOREIGN CURRENCY OPERATIONS
Reaffirmed March 28, 1983
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:
3/28-29/83
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 $8.0 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:
3/28-29/83
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
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
Amount of arrangement
(millions of dollars
equivalent)
250
1,000
2,000
250
3,000
2,000
6,000
3,000
5,000
700
325
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.
3/28-29/83
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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.
3/28-29/83
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By unanimous vote, the Foreign Currency Directive shown below was
reaffirmed:
FOREIGN CURRENCY DIRECTIVE
Reaffirmed March 28, 1983
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.
3/28-29/83
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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, 1983
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 1B.
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):
3/28-29/83
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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.
By unanimous vote, the Committee reaffirmed the agreement of
January 17, 1977, to "warehouse" foreign currencies for the Exchange
Stabilization Fund and for the Treasury on the terms agreed upon by the
Committee at its meeting on March 18, 1980, with the understanding that
the agreement would be subject to annual review.
By unanimous vote, the Authorization for Domestic Open Market
Operations was amended to read as follows:
AUTHORIZATION FOR DOMESTIC OPEN MARKET OPERATIONS
(As amended March 28, 1983)
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 $4.0 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;
3/28-29/83
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(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. 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
3/28-29/83
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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 pro
visions of this paragraph may provide for a service fee when appropriate.
By unanimous vote, the Resolution of Federal Open Market Committee
Authorizing Certain Actions by Federal Reserve Banks During an Emergency was
amended to read as follows:
RESOLUTION OF FEDERAL OPEN MARKET COMMITTEE AUTHORIZING
CERTAIN ACTIONS BY FEDERAL RESERVE BANKS DURING AN EMERGENCY
Amended March 28, 1983
The Federal Open Market Committee hereby authorizes each Federal
Reserve Bank to take any or all of the actions set forth below during war or
defense 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.
(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
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.
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3/28-29/83
By unanimous vote, the Regulation Relating to Open Market
Operations of Federal Reserve Banks was amended to read as follows:
REGULATION RELATING TO
OPEN MARKET OPERATIONS OF
FEDERAL RESERVE BANKS
Amended March 28, 1983
SECTION 270.1--AUTHORITY
This Part is issued by the Federal Open Market Committee (the "Committee")
pursuant to authority conferred upon it by sections 12A and 14 of the Federal
Reserve Act (12 U.S.C. Sections 263, 355).
SECTION 270.2--DEFINITIONS
(a) The term "obligations" means Government securities, U.S. agency
securities, bankers' acceptances, bills of exchange, cable transfers, bonds,
notes, warrants, debentures, and other obligations that Federal Reserve Banks
are authorized by law to purchase and sell.
(b) The term "Government securities" means direct obligations of the
United States (i.e., U.S. bonds, notes, certificates of indebtedness, and
Treasury bills) and obligations fully guaranteed as to principal and interest
by the United States.
(c) The term "U.S. agency securities" means obligations that are direct
obligations of, or are fully guaranteed as to principal and interest by, any
agency of the United States.
(d) The term "System Open Market Account" means the obligation acquired
pursuant to authorizations and directives issued by the Committee and held
on behalf of all Federal Reserve Banks.
SECTION 270.3--GOVERNING PRINCIPLES
As required by section 12A of the Federal Reserve Act, the time, character,
and volume of all purchases and sales of obligations in the open market by
Federal Reserve Banks are governed with a view to accommodating commerce and
business and with regard to their bearing upon the general credit situation
of the country.
3/28-29/83
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SECTION 270.4--TRANSACTIONS IN OBLIGATIONS
(a) Each Federal Reserve Bank shall engage in open market operations
under section 14 of the Federal Reserve Act only in accordance with this
Part and with the authorizations and directives issued by the Committee
from time to time, and no Reserve Bank shall decline to engage in open
market operations as directed by the Committee.
(b) Transactions for the System Open Market Account shall be executed
by a Federal Reserve Bank selected by the Committee. The participations of
the several Federal Reserve Banks in such Account and in the profits and
losses on transactions for the Account shall be allocated in accordance with
principles determined by the Committee from time to time.
(c) In accordance with such limitations, terms, and conditions as are
prescribed by law and in authorizations and directives issued by the Committee,
the Reserve Bank selected by the Committee is authorized and directed(1) To buy and sell Government securities and U.S. agency securities
in the open market for the System Open Market Account, and to exchange
maturing securities with the issuer;
(2) To buy and sell bankers' acceptances in the open market for
its own account;
(3) To buy Government securities, U.S. agency securities, and
bankers' acceptances of the kinds described above, under agreements
for repurchase of such obligations, in the open market for its own
account; and
(4) To buy and sell foreign currencies in the form of cable
transfers in the open market for the System Open Market Account and
to maintain for such Account reciprocal currency arrangements with
foreign banks among those designated by the Board of Governors of the
Federal Reserve System under Section 214.5 of this chapter [Regulation
N].
(d) The Federal Reserve Banks are authorized and directed to engage in
such other operations as the Committee may from time to time determine to be
reasonably necessary to the effective conduct of open market operations and
the effectuation of open market policies.
3/28-29/83
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By unanimous vote, the minutes of actions taken at the meeting of
the Federal Open Market Committee held on February 8-9, 1983, were approved.
Renewal for further periods of three months of drawings on the System
by the Bank of Mexico maturing April 9 through May 27, 1983, was noted without
objection.
By unanimous vote, System open market transactions in Government
securities, agency obligations, and bankers acceptances during the period
February 9 through March 28, 1983, were ratified.
Secretary's Note: All of the above actions were taken on
Monday, March 28, 1983.
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:
The information reviewed at this meeting suggests
that real GNP rose moderately in the first quarter,
after a decline in the fourth quarter; the turnaround
reflects a considerable slowing in inventory liquidation.
Private final sales apparently increased only slightly
less than in the fourth quarter with housing activity
strengthening further. Business fixed investment has
remained weak. Nonfarm payroll employment rose on
balance in January and February, after an extended
period of declines; the civilian unemployment rate
was unchanged in February at 10.4 percent. In early
1983 the rise in average prices and the advance in
the index of average hourly earnings have slowed
further.
The weighted average value of the dollar against
major foreign currencies rose somewhat on balance
between early February and late March. The U.S.
merchandise trade deficit declined marginally in
January.
M2 continued to grow at an exceptional rate in
February and M3 also expanded at a rapid pace, but
growth in both of the broader aggregates appears to
be decelerating substantially in March. The decelera
tion reflects in part the marked slowing in growth of
money market deposit accounts (MMDAs) in recent weeks
and apparently also a moderation in the underlying
3/28-29/83
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growth of these aggregates, abstracting from shifts
from market instruments. M1 has expanded rapidly
since late January, largely reflecting accelerated
growth in NOW accounts. Growth in debt of domestic
nonfinancial sectors appears to have been moderate
in the first quarter. Short-term interest rates have
risen somewhat since early February while long-term
rates, including mortgage rates, have declined.
The Federal Open Market Committee seeks to foster
monetary and financial conditions that will help to
reduce inflation further, promote a resumption of
growth in output on a sustainable basis, and contri
bute to a sustainable pattern of international trans
actions. At its meeting in February the Committee
established growth ranges for monetary and credit
aggregates for 1983 in furtherance of these objectives.
The Committee recognized that the relationships between
such ranges and ultimate economic goals have been less
predictable over the past year; that the current impact
of new deposit accounts on growth rates of monetary
aggregates cannot be determined with a high degree of
confidence; and that the availability of interest on
large portions of transaction accounts, declining
inflation, and lower market rates of interest may be
reflected in some changes in the historical trends in
velocity. A substantial shift of funds into M2 from
market instruments, including large certificates of
deposit not included in M2, in association with the
extraordinarily rapid build-up of money market deposit
accounts, has distorted growth in that aggregate during
the first quarter.
In establishing growth ranges for the aggregates
for 1983 against this background, the Committee felt
that growth in M2 might be more appropriately measured
after the period of highly aggressive marketing of
money market deposit accounts has subsided. The
Committee also felt that a somewhat wider range was
appropriate for monitoring M1. Those growth ranges
will be reviewed in the spring and altered, if appro
priate, in the light of evidence at that time.
With these understandings, the Committee established
the following growth ranges: for the period from February
March of 1983 to the fourth quarter of 1983, 7 to 10 per
cent at an annual rate for M2, taking into account the
3/28-29/83
-18-
probability of some residual shifting into that aggregate
from non-M2 sources; and for the period from the fourth
quarter of 1982 to the fourth quarter of 1983, 6-1/2 to
9-1/2 percent for M3, which appeared to be less distorted
by the new accounts. For the same period a tentative
range of 4 to 8 percent was established for M1, assuming
that Super NOW accounts would draw only modest amounts
of funds from sources outside M1 and assuming that the
authority to pay interest on transaction balances is not
extended beyond presently eligible accounts. An associated
range of growth for total domestic nonfinancial debt was
estimated at 8-1/2 to 11-1/2 percent.
In implementing monetary policy, the Committee agreed
that substantial weight would be placed on behavior of the
broader monetary aggregates, expecting that distortions in
M2 from the initial adjustment to the new deposit accounts
will abate. The behavior of M1 will be monitored, with
the degree of weight placed on that aggregate over time
dependent on evidence that velocity characteristics are
resuming more predictable patterns. Debt expansion, while
not directly targeted, will be evaluated in judging responses
to the monetary aggregates. The Committee understood that
policy implementation would involve continuing appraisal
of the relationships between the various measures of money
and credit and nominal GNP, including evaluation of con
ditions in domestic credit and foreign exchange markets.
For the short run, the Committee seeks to maintain
generally the existing degree of restraint on reserve
positions, anticipating that would be consistent with a
slowing from March to June in growth of M2 and M3 to
annual rates of about 9 and 8 percent, respectively.
The Committee expects that M1 growth at an annual rate
of about 6 to 7 percent would be consistent with its
objectives for the broader aggregates. Lesser restraint
would be acceptable in the context of more pronounced
slowing of growth in the monetary aggregates relative
to the paths implied by the long-term ranges (taking
account of the distortions relating to the introduction
of new accounts), or indications of a weakening in the
pace of economic recovery. The Chairman may call for
Committee consultation if it appears to the Manager for
Domestic Operations that pursuit of the monetary objec
tives and related reserve paths during the period before
the next meeting is likely to be associated with a
federal funds rate persistently outside a range of
6 to 10 percent.
3/28-29/83
-19It was agreed that the next meeting of the Committee would be held
on Tuesday, May 24, 1983.
The meeting adjourned.
Secretary's note:
On May 9-10, 1983, by unanimous vote,
with Mr. Timlen voting as alternate for Mr. Solomon,
Committee members approved a temporary increase from
$4 billion to $5 billion in the limit on changes between
Committee meetings in System Account holdings of U.S.
government and federal agency securities specified in
paragraph 1(a) of the authorization for domestic open
market operations effective May 10 for the period ending
with the close of business on May 24, 1983.
Secretary
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