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Meeting of the Federal Open Market Committee
November 1, 1988
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, November 1, 1988, at 9:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Ms.
Greenspan, Chairman
Corrigan, Vice Chairman
Angell
Black
Forrestal
Heller
Hoskins
Johnson
Kelley
LaWare
Parry
Seger
Messrs. Guffey, Keehn, Melzer, and Morris, Alternate
Members of the Federal Open Market Committee
Messrs. Boehne, Boykin, and Stern, Presidents of the
Federal Reserve Banks of Philadelphia, Dallas, and
Minneapolis, respectively
Kohn, Secretary and Economist
Bernard, Assistant Secretary
Bradfield, General Counsel
Patrikis, Deputy General Counsel
Prell, Economist
Truman, Economist
Messrs. Broaddus, J. Davis, R. Davis,
Siegman, Simpson, and Ms. Tschinkel,
Associate Economists
Mr. Sternlight, Manager for Domestic Operations,
System Open Market Account
Mr. Cross, Manager for Foreign Operations,
System Open Market Account
Mr. Coyne, Assistant to the Board, Board of Governors
Mr. Ettin, Deputy Director, Division of Research and
Statistics, Board of Governors
Mr. Promisel, Senior Associate Director, Division of
International Finance, Board of Governors
Ms. Zickler, Assistant Director, Division of Research
and Statistics, Board of Governors
Mr. Porter,l Assistant Director, Division of Monetary
Affairs, Board of Governors
Messrs. Hallman l and Small, l Economists, Division of
Monetary Affairs
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
Mr. Gillum, Economist, Open Market Secretariat, Division
of Monetary Affairs, Board of Governors
Ms. Low, Open Market Secretariat Assistant, Division of
Monetary Affairs, Board of Governors
Messrs. Balbach, T. Davis, Lang, Ms. Munnell,
Messrs. Rolnick, Rosenblum, and Scheld, Senior Vice
Presidents, Federal Reserve Banks of St. Louis,
Kansas City, Philadelphia, Boston, Minneapolis,
Dallas, and Chicago, respectively
Mr. Judd, Vice President, Federal Reserve Bank of
San Francisco
Ms. Meulendyke, Manager, Open Market Operations,
Federal Reserve Bank of New York
By unanimous vote, the minutes of actions taken at the meeting of
the Federal Open Market Committee held on September 20, 1988, were
approved.
By unanimous vote, the Committee amended Section 2(b) of its
"Rules of Organization", to advance from March 1 to January 1 of each year
the start of the annual terms of newly elected members and alternate
members representing Federal Reserve Banks.
This change will take effect
January 1, 1990.
1. Attended portion of the meeting relating to long-run relationship
between money and prices.
By unanimous vote, System open market transactions in foreign
currencies during the period September 20, 1988 through October 31, 1988,
were ratified.
By unanimous vote, System open market transactions in government
securities and federal agency obligations during the period September 20,
1988 through October 31, 1988, were ratified.
By unanimous vote, paragraph 1(a) of the Authorization for
Domestic Open Market Operations was amended to raise from $6 billion to $10
billion the dollar limit on intermeeting changes in System Account holdings
of U.S. government and federal agency securities for the intermeeting
period ending December 14, 1988.
By unanimous vote, the Committee authorized the renewal for
further periods of one year of the System's reciprocal currency ("swap")
arrangements having the amounts and maturity dates indicated below:
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
SettlementsSwiss francs
Other authorized
European currencies
Amount of
arrangement
(millions of
$ equivalent)
$ 250.0
1,000.0
2,000.0
250.0
3,000.0
2,000.0
6,000.0
3,000.0
5,000.0
700.0
500.0
250.0
300.0
4,000.0
Term
(months)
12 mos.
"
"
"
"
"
"
"
"
"
"
"
"
"
Maturity
date
12/02/88
12/16/88
12/28/88
12/29/88
12/02/88
12/28/88
12/28/88
12/28/88
12/02/88
12/02/88
12/28/88
12/02/88
12/02/88
12/02/88
600.0
"
12/02/88
1,250.0
"
12/02/88
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
domestic policy directive:
The information reviewed at this meeting indicates
that the expansion in economic activity has moderated
from the vigorous pace earlier in the year. Total
nonfarm payroll employment grew considerably in the
third quarter but the gains were less than those
registered in the first half of the year and employment
in manufacturing declined in August and September. The
civilian unemployment rate fell to 5.4 percent in
September, remaining in the narrow range that has
prevailed since early spring. Industrial production
advanced only slightly on balance in August and
September after a sharp increase in July, while housing
construction has been flat in recent months. Consumer
spending increased substantially on average in the third
quarter but apparently slowed in recent months. Indica
tors of business capital spending suggest considerably
slower expansion in the third quarter, following very
rapid growth in the first half of the year. Preliminary
data for the nominal U.S. merchandise trade deficit in
August showed a greater deficit than in July, but the
average for July-August was slightly less than the
second-quarter rate. The latest information on prices
and wages suggests little if any change from recent
trends.
Interest rates in long-term debt markets have
declined a little further since the Committee meeting on
September 20, while rates in short-term markets have
edged higher. The trade-weighted foreign exchange value
of the dollar in terms of the other G-10 currencies
declined appreciably over the intermeeting period from
the high level of last summer.
Expansion of M2 has slowed considerably in recent
months; growth of M3 moderated in August and September
but appears to have strengthened somewhat in October.
Thus far this year, M2 has grown at a rate somewhat
below, and M3 at a rate somewhat above, the midpoint of
the ranges established by the Committee for 1988. M1
has increased only slightly on balance in recent months
after registering relatively strong growth in June and
July. Expansion of total domestic nonfinancial debt for
the year thus far appears to be at a pace somewhat below
that in 1987.
-5-
The Federal Open Market Committee seeks monetary
and financial conditions that will foster price
stability over time, 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 late June
reaffirmed the ranges it had established in February for
growth of 4 to 8 percent for both M2 and M3, measured
from the fourth quarter of 1987 to the fourth quarter of
1988. The monitoring range for growth of total domestic
nonfinancial debt was also maintained at 7 to 11 percent
for the year.
For 1989, the Committee agreed on tentative ranges
for monetary growth, measured from the fourth quarter of
1988 to the fourth quarter of 1989, of 3 to 7 percent
for M2 and 3-1/2 to 7-1/2 percent for M3. The Committee
set the associated monitoring range for growth of total
domestic nonfinancial debt at 6-1/2 to 10-1/2 percent.
It was understood that all these ranges were provisional
and that they would be reviewed in early 1989 in the
light of intervening developments.
With respect to M1,the Committee reaffirmed its
decision in February not to establish a specific target
for 1988 and also decided not to set a tentative range
for 1989. The behavior of this aggregate will continue
to be evaluated in the light of movements in its
velocity, developments in the economy and financial
markets, and the nature of emerging price pressures.
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 exchange and
domestic financial markets, somewhat greater reserve
restraint would, or slightly lesser reserve restraint
might, 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
September through December at annual rates of about
2-1/2 and 6 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.
-6
It was agreed that the next meeting of the Committee would be held on
Wednesday, December 14, 1988.
The meeting adjourned.
Secretary
@FedFRASER