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Meeting of the Federal Open Market Committee
November 3, 1987
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 3, 1987, at 9:30 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Ms.
Mr.
Greenspan, Chairman
Corrigan, Vice Chairman
Angell
Boehne
Boykin
Heller
Johnson
Keehn
Kelley
Seger
Stern
Messrs. Black, Forrestal, Hoskins, and Parry, Alternate
Members of the Federal Open Market Committee
Messrs. Guffey, Melzer and Morris, Presidents of the
Federal Reserve Banks of Kansas City, St. Louis,
and Cleveland, respectively
Mr. Kohn, Secretary and Staff Adviser
Mr. Bernard, Assistant Secretary
Mrs. Loney, Deputy Assistant Secretary
Mr. Bradfield, General Counsel
Mr. Truman, Economist (International)
Messrs. Fousek, Lang, Lindsey, Prell, Rosenblum,
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, Board of Governors
Mr. Promisel, Senior Associate Director, Division of
International Finance, Board of Governors
Mr. Slifman, Deputy Associate Director, Division of
Research and Statistics, Board of Governors
Ms. Low, Open Market Secretariat Assistant, Division of
Monetary Affairs, Board of Governors
Messrs. Balbach, Beebe, Broaddus, J. Davis, T. Davis,
Mmes. Munnell and Tshinkel, Senior Vice Presidents
Federal Reserve Banks of St. Louis, San Francisco,
Richmond, Cleveland, Kansas City, Boston, and
Atlanta, respectively
Ms. Lovett, Vice President, Federal Reserve Bank of
New York
Mr. Weber, Assistant Vice President, Federal Reserve
Bank of Minneapolis
Secretary's Note: Prior to this meeting, notice
had been received of the election of W. Lee Hoskins
as an alternate member of the Federal Open Market
Committee for the period October 9, 1987 through
February 29, 1988, and Mr. Hoskins had executed
his Oath of Office.
By unanimous vote, the minutes of actions taken at the meeting
of the Federal Open Market Committee held on September 22 1987, were approved.
By unanimous vote, System open market transactions in government
securities and federal agency obligations during the period September 22, 1987,
through November 2, 1987, were ratified.
By unanimous vote, paragraph 1(a) of the Authorization for Domestic
Open Market Operations was amended to raise from $6 billion to $9 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 16, 1987.
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By unanimous vote, System open market transactions in foreign
currencies during the period September 22, 1987, through November 2, 1987
were ratified.
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:
Amount of
Foreign bank
arrangement
(millions of
$ equivalent)
Austrian National Bank
National Bank of Belgium
Bank of Canada
$ 250.0
1,000.0
National Bank of Denmark
Term
(months)
250.0
4,000.0
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12/17/87
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12/29/87
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600.0
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1,250.0
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12 mos.
2,000.0
Bank of England
"
3,000.0
Bank of France
2,000.0
6,000.0
3,000.0
German Federal Bank
Bank of Italy
Bank of Japan
Bank of Mexico
Netherlands Bank
Bank of Norway
Bank of Sweden
Swiss National Bank
Maturity
date
5,000.0
700.0
500.0
"
250.0
300.0
"
Bank for International
Settlements
Swiss francs
Other authorized
European currencies
By unanimous vote, the Federal Reserve Bank of New York was
authorized and directed, until otherwise directed by the Committee, to
execute transactions in the System Account in accordance with the following
domestic policy directive:
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The economic information available at this meeting
was reviewed against the backdrop of extraordinary develop
ments in financial markets in the period since the previous
Committee meeting on September 22,
Share prices in the
stock market were down sharply. Following a particularly
large decline of stock prices in mid-October, interest
rates fell steeply and increases that had occurred during
the first part of the intermeeting period subsequently
were more than reversed on most types of debt obligations.
Foreign exchange markets were relatively calm over most
of the intermeeting period, but the dollar came under
significant downward pressure late in the period.
In the third quarter economic activity had expanded
at a fairly brisk pace. Total nonfarm payroll employment
rose further in September, with the manufacturing sector
continuing to record relatively sizable gains. The
civilian unemployment rate edged down to 5.9 percent.
Industrial production increased somewhat further in
September following large gains in other recent months.
Retail sales declined somewhat in September, but consumer
spending, bolstered by a rise in auto sales, posted a
large increase over the third quarter. Business capital
spending was strong in the third quarter and forward
indicators pointed to continuing gains. Housing starts
were up in September but were little changed in the
third quarter from their second-quarter average. The
nominal U.S. merchandise trade deficit narrowed in
August, but the July-August average remained above
the second-quarter rate. The rise in consumer and
producer prices was relatively moderate in recent
months following more rapid increases earlier in
the year.
Growth of the monetary aggregates appeared to have
strengthened in October, with some of the strength
reflecting heightened demands for transaction balances
and other liquid assets in the latter part of the
month. Even so, for 1987 through October, expansion
of M2 evidently moved closer to, but remained below,
the lower end of the range established by the Committee
for the year, while growth of M3 was around the lower
end of its range.
Expansion in total domestic non
financial debt has remained on a more moderate trend
in recent months.
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The Federal Open Market Committee seeks monetary
and financial conditions that will foster reasonable
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 agreed at its meeting
in July to reaffirm the ranges established in February
for growth of 5-1/2 to 8-1/2 percent for both M2 and M3
measured from the fourth quarter of 1986 to the fourth
quarter of 1987. The Committee agreed that growth in
these aggregates around the lower ends of their ranges
may be appropriate in light of developments with respect
to velocity and signs of the potential for some strength
ening in underlying inflationary pressures, provided
that economic activity is expanding at an acceptable
pace. The monitoring range for growth in total domestic
nonfinancial debt set in February for the year was left
unchanged at 8 to 11 percent.
For 1988, the Committee agreed on tentative ranges
of monetary growth, measured from the fourth quarter of
1987 to the fourth quarter of 1988, of 5 to 8 percent
for both M2 and M3. The Committee provisionally set
the associated range for growth in total domestic non
financial debt at 7-1/2 to 10-1/2 percent.
With respect to M1, the Committee recognized that,
based on experience, the behavior of that aggregate
must be judged in the light of other evidence relating
to economic activity and prices; fluctuations in M1 have
become much more sensitive in recent years to changes in
interest rates, among other factors. Because of this
sensitivity, which has been reflected in a sharp slowing
of the decline in M1 velocity over the first half of the
year, the Committee again decided at the July meeting
not to establish a specific target for growth in M1 over
the remainder of 1987 and no tentative range was set for
1988. The appropriateness of changes in M1 this year
will continue to be evaluated in the light of the be
havior of its velocity, developments in the economy and
financial markets, and the nature of emerging price
pressures. The Committee welcomes substantially slower
growth of M1 in 1987 than in 1986 in the context of
continuing economic expansion and some evidence of
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greater inflationary pressures. The Committee in
reaching operational decisions over the balance of the
year will take account of growth in M1 in the light of
circumstances then prevailing. The issues involved with
establishing a target for M1 will be carefully reappraised
at the beginning of 1988.
In the implementation of policy for the immediate
future, the Committee seeks to maintain the degree of
pressure on reserve positions sought in recent days.
The Committee recognizes that the volatile conditions
in financial markets and uncertainties in the economic
outlook may continue to call for a special degree of
flexibility in open market operations, depending, in
particular, on demands for liquidity growing out of
recent or prospective developments in financial markets.
Apart from such considerations, somewhat lesser reserve
restraint would, or slightly greater reserve restraint
might, be acceptable depending on the strength of the
business expansion, indications of inflationary pressures,
developments in foreign exchange markets, as well as the
behavior of the monetary aggregates. While the outlook
for monetary growth over the months ahead is subject to
unusual uncertainty, the contemplated reserve conditions
are expected to be consistent with growth in M2 and M3
over the period from September through December at annual
rates of about 6 to 7 percent, but more rapid growth is
possible should preferences for liquidity be particularly
strong. Over the same period, growth in M1 is expected
to be well above its average pace in the previous several
months. 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
4 to 8 percent.
It was agreed that the next meeting of the Committee would be
held on December 15-16, 1987.
The meeting adjourned.
Secretary
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