View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

Meeting of the Federal Open Market Committee
November 7, 1984
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 Wednesday, November 7, 1984, at 9:00 a.m.

PRESENT:

Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mrs
Mr.
Mr.
Mr.
Ms.
Mr.

Volcker, Chairman
Solomon, Vice Chairman
Boehne
Boykin
Corrigan
Gramley
Horn
Martin
Partee
Rice
Seger
Wallich

Messrs. Balles,1/ Black, Forrestal, and Keehn, Alternate
Members of the Federal Open Market Committee
Messrs. Guffey, Morris, and Roberts, Presidents of the Federal
Reserve Banks of Kansas City, Boston, and St. Louis,
respectively
Mr. Axilrod, Staff Director and Secretary
Mr. Bernard, Assistant Secretary
Mrs. Steele, Deputy Assistant Secretary
Mr. Bradfield, General Counsel
Mr. Oltman, Deputy General Counsel
Mr. Kichline, Economist
Mr. Truman, Economist (International)
Messrs. Burns, J. Davis, Kohn, Lang, Lindsey,
Siegman, and Stern, Associate Economists
Mr. Sternlight, Manager for Domestic Operations,
System Open Market Account
Mr. Cross, Manager for Foreign Operations,
System Open Market Account

1/

Left meeting before action to adopt domestic policy directive.

-2-

11/7/84

Mr. Coyne, Assistant to the Board of Governors
Mr. Roberts, Assistant to the Chairman, Board of Governors
Mr. Gemmill, Staff Adviser, Division of International
Finance, Board of Governors
Mrs. Low, Open Market Secretariat Assistant,
Board of Governors
Mr. Fousek, Executive Vice President, Federal Reserve
Bank of New York
Mr. Balbach, Ms. Munnell, Messrs. Parthemos, Scheld, and
Ms. Tschinkel, Senior Vice Presidents, Federal
Reserve Banks of St. Louis, Boston, Richmond,
Chicago, and Atlanta, respectively
Messrs. Cacy, Bisignano, and Judd, Vice Presidents, Federal
Reserve Banks of Kansas City, San Francisco, and
San Francisco, respectively
Ms. Lovett, Assistant Vice President, 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 October 2, 1984, were approved.
By unanimous vote, System open market transactions in foreign
currencies during the period October 2 through November 6, 1984, were ratified.
By unanimous vote, the Committee authorized the Manager to negotiate
the renewal for further periods of up to one year of the reciprocal currency
("swap") arrangements having the indicated amounts and maturity dates as
shown below.

11/7/84

Foreign bank

Amount of
arrangement
(millions of
$ 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
Netherlands Bank
Bank of Norway
Bank of Sweden
Swiss National Bank
Bank for International
SettlementsSwiss francs
Other authorized
European currencies

$

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

600.0
1,250.0

Term
(months)

Maturity
date

12 mos.
"12/17/84
"
"12/28/84
"
"12/28/84
"12/28/84
"
"
"12/
"
"
"12/
"

12/ 3/84
12/28/84
12/ 3/84

12/28/84
12/ 3/84
3/84
12/28/84
12/ 3/84
3/84
12/ 3/84

"12/
"

3/84
12/ 3/84

By unanimous vote, System open market transactions in Government
securities and agency obligations during the period October 2 through
November 6, 1984, were ratified.
With Mr. Gramley 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
a mixed pattern of developments but on balance suggests
that economic activity is continuing to expand, though
at a considerably more moderate pace than earlier in
the year. Nonfarm payroll employment rose substantially
outside of manufacturing in October, following a moderate

increase in September, and the civilian unemployment

11/7/84
rate was unchanged at 7.4 percent. Industrial pro
duction fell in September, partly because of strikes,
and available information suggests little increase
in October. Retail sales and housing starts rebounded
in September after two months of decline. Information
on outlays and spending plans suggests slower ex
pansion in business fixed investment, following
exceptionally rapid growth earlier, and inventory
investment, having risen relative to sales in
recent months, also appears to be slowing. Since
the beginning of the year, broad measures of prices
generally have continued to rise at rates close to,
or somewhat above, those recorded in 1983, and the
index of average hourly earnings has risen somewhat
more slowly.
Growth of the monetary aggregates strengthened
in September, but data available for October indicated
that M1 declined during the month, growth of M2 slowed
somewhat, and expansion of M3 picked up further. From
the fourth quarter of 1983 through October, M1 grew
at a rate in the lower half of the Committee's range
for 1984, M2 at a rate somewhat below the midpoint
of its longer-run range, and M3 at a rate a bit above
the upper limit of its range. Growth in total domestic
nonfinancial debt appears to be continuing above the
Committee's monitoring range for the year, reflecting
large government borrowing; private credit growth,
though relatively strong, has moderated in recent
months. Interest rates have fallen substantially
further since the meeting of the Committee on
October 2.
Over the past month, the foreign exchange value
of the dollar against a trade-weighted average of
major foreign currencies has continued to fluctuate
widely, rising to a new high in mid-October but
subsequently declining to somewhat below its level at
the time of the previous meeting. The merchandise
trade deficit in the third quarter was substantially
above the first-half rate as a sharp rise in non-oil
imports exceeded some further growth in exports.
The Federal Open Market Committee seeks to
foster monetary and financial conditions that will
help to reduce inflation further, promote growth
in output on a sustainable basis, and contribute to
an improved pattern of international transactions.

11/7/84

-5

In furtherance of these objectives the Committee
agreed at the July meeting to reaffirm the ranges
for monetary growth that it had established in
January: 4 to 8 percent for M1 and 6 to 9 percent
for both M2 and M3 for the period from the fourth
quarter of 1983 to the fourth quarter of 1984.
The associated range for total domestic non
financial debt was also reaffirmed at 8 to 11
percent for the year 1984. It was anticipated
that M3 and nonfinancial debt might increase at
rates somewhat above the upper limits of their
1984 ranges, given developments in the first half
of the year, but the Committee felt that higher
target ranges would provide inappropriate bench
marks for evaluating longer-term trends in M3 and
credit growth. For 1985 the Committee agreed on
tentative ranges of monetary growth, measured
from the fourth quarter of 1984 to the fourth quarter
of 1985, of 4 to 7 percent for M1, 6 to 8-1/2 percent
for M2, and 6 to 9 percent for M3. The associated
range for nonfinancial debt was set at 8 to 11
percent.
The Committee understood that policy implementation
would require continuing appraisal of the relationships
not only among the various measures of money and credit
but also between those aggregates and nominal GNP,
including evaluations of conditions in domestic credit
and foreign exchange markets.
In the implementation of policy in the short run,
the Committee seeks to reduce somewhat existing pressures
on reserve positions. This action is expected to be
consistent with growth of M2 and M3 at annual rates of
around 7-1/2 and 9 percent during the period from
September to December. M1 is expected to grow over
the period at an annual rate of around 3 percent, less
than anticipated earlier in view of the decline in
October. In light of that decline, more rapid growth
of M1 would be acceptable. Lesser restraint on reserve
positions would be sought in the event of significantly
slower growth in the monetary aggregates, evaluated in
relation to the strength of the business expansion and
inflationary pressures, domestic and international
financial market conditions, and the rate of credit
growth. Conversely, greater restraint might be accept
able in the event of substantially more rapid monetary

-6-

11/7/84

growth and indications of significant strengthening
of economic activity and inflationary pressures. The
Chairman may call for Committee consultation if it
appears to the Manager for Domestic Operations that
pursuit of the monetary objectives 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 7 to 11 percent.
It was agreed that the next meeting of the Committee would be
held on Tuesday, December 18, 1984.
The meeting adjourned.
Secretary's note: Subsequent to this meeting, the
Committee unanimously approved temporary increases
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. The first action, increasing the
limit from $4 billion to $6 billion was effective
November 21, 1984; the second increase, from
$6 billion to $8 billion, was effective on
December 5, 1984. Both increases applied to
the intermeeting period ending with the close
of business on December 18, 1984.

Secretary