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Federal Open Market Committee
Conference Call
January 18, 1985


Mr. Volcker, Chairman
Mr. Corrigan, Vice Chairman
Mr. Boehne
Mr. Boykin
Mr. Gramley
Mrs. Horn
Mr. Martin
Mr. Partee
Mr. Rice
Ms. Seger
Mr. Wallich
Messrs. Balles, Black, Forrestal, Keehn, and Timlen,
Alternate Members of the Federal Open Market
Messrs. Guffey and Morris, Presidents of the
Federal Reserve Banks of Kansas City and
Boston, respectively

Bernard, Assistant Secretary
Bradfield, General Counsel
Steele, Deputy Assistant Secretary
Kichline, Economist
Truman, Economist (International)

Mr. Kohn, Associate Economist
Mr. Sternlight, Manager for Domestic Operations,
System Open Market Account
Mr. Cross, Manager for Foreign Operations,
System Open Market Account
Mr. Roberts, Assistant to the Board, Office of
Board Members, Board of Governors

Transcript of Federal Open Market Committee Conference Call Held on
January 18, 1985
CHAIRMAN VOLCKER. [Unintelligible], but certainly the sense
was that we were talking in that kind of time frame and that if there
were a pronounced tendency for the dollar to strengthen, it should be
combated in a more or less concerted way. This would involve all the
G-5 countries in one way or another in principle and might involve
some other European countries as well.
So having in a sense agreed to
that approach, I thought we'd better review it with the Committee
before we went any further. We haven't done anything but say we stand
now prepared to do something. All this would be in conjunction with
the Treasury, as we have been operating, should the dollar strengthen
appreciably this afternoon. On Monday the New York market will be
closed, so this probably won't be operational for us on Monday unless
there are some fringe markets. But on Tuesday or Wednesday, let's
say, if the dollar strengthened appreciably, we would be prepared to
operate potentially--not necessarily, but potentially--in greater size
than we have operated for some time. There is no precise indication
of size but I mention that because we've tended to do little dribbles
when we have [intervened] recently and this might be a bit more than a
little dribble if the need were such.
I don't think there's any need for any operational decision
We have adequate limits of various
in terms of directives or limits.
I don't think it's inconceivable that we would
sorts for the moment.
run through some of these limits if the dollar were really strong, but
we're not in any imminent danger of doing that. That, of course,
I don't know whether Mr. Cross
would be a point for further review.
or Mr. Truman have those limits more closely in mind. They might run
through those for us; and Mr. Cross in any event can give us a little
summary of what has been happening in the exchange markets recently.
Do Mr. Truman or Mr. Cross have
Why don't we start with the limits?
them more firmly in mind?
MR. TRUMAN. I think we both do. Why doesn't Sam do both,
and then we will only listen to one voice.
York [on the line].

Go ahead, Sam.

We probably don't have New


Who do we have on this call?


Philadelphia just came on late.


Do we have anybody else?

Atlanta's here.

On in Chicago.


Here in Dallas.


San Francisco.


Kansas City's on.


Boston should be on.




Can you hear New York?


New York is on.

Where have you been?

Where have you been, Sam?

MR. CROSS. We've been on for about the past five minutes but
no one could hear me. Can you hear me now?


MR. CROSS. All right. Let me proceed.
[The overall limit]
on balances for all currencies as you recall is $6-1/2 billion, and we
have available under that overall limit $1-1/2 billion. So we're very
comfortable there. This is broken down into [informal limits on]
deutschemarks, yen, and other currencies. The other currencies
[category] would be relevant if we were to intervene in other than the
DM or the yen, namely in sterling. We have available under that
limitation $167 million at the present time. So, our authorized
balances are not in danger of being breached at this moment.
With respect to the market, let me give you a little rundown:
Immediately prior to the time Secretary Regan spoke yesterday, which
was very late in the course of our day--our markets were closing--the
dollar was cruising around 3.175 marks. The other currencies had
moved more or less similarly vis-a-vis the mark. After his statement,
there was an initial fallback in the dollar in the South Pacific and
other markets that were open; it fell back about 2 pfennigs. But
after hitting these lower levels and when the Far East became more
active, there were buyers for dollars at these lower levels and that
seemed to cover professionals and speculators. We heard the usual-that speculative operators were in there, namely the Russians and
South Africans and so forth. As a result of all this, the dollar then
rose again somewhat and opened in Europe at about 3.165 marks. During
the course of the European day the dollar was fairly quiet. It just
barely touched 3.18 marks once or twice but generally speaking was in
the 3.17 to 3.175 range during Europe's day. Since I've been sitting
here the dollar does seem to be rising and has now gone up above the
3.18 level; it's getting close to 3.185.
The attitude towards Secretary Regan's statement seems to
vary considerably among the various market participants. A number of
them called attention to the fact that it was cited as a reaffirmation
of the Williamsburg agreements, and they tend to think that that makes
it likely not to be of major significance--that it might be something
to placate the Europeans. But there are a number of people who have
read the Regan statement as reflecting the possibility, certainly, of
something aimed at communicating more than that. And the market is
wary. They read the comments that there may be some surprises and
that we might operate on occasions when it would be helpful and not
just [to counter] disorderly market pressures as in the past. So,
there is a general wariness and uneasiness. And there is some
likelihood that the market, either in the course of today or
relatively soon, will try to test some of these [intervention] points
and get a better understanding of the meaning of the Group of 5
statement. As of now, that's the general picture. I think very few
people believe that it reflects any fundamental modification of our


policy. But there are quite a few who think that it may have some
Thank you.
significance and they are rather wary because of that.
CHAIRMAN VOLCKER. The significance of this phrase that Mr.
Cross used about being helpful--I don't remember the exact words, but
the Williamsburg Communique said something to the effect that we were
all prepared to intervene when it was mutually agreed that it would be
That is a nice diplomatic formulation of saying one will
intervene when everybody agrees. And that's the wording that was used
I guess the conclusion yesterday was that
to some degree yesterday.
it was a mutual agreement that it might [not] be helpful if the dollar
So, that's where we are. And
strengthened appreciably at this point.
if it's strengthening enough now it may become operational today.
Paul, was there any view about the pound?
that looked at separately?


CHAIRMAN VOLCKER. Well, there was some discussion of that
and I think it was in this context: that if you could imagine a pound
problem really insulated from this and not accompanied by the general
strengthening of the dollar, this doesn't apply.

It does not apply?

CHAIRMAN VOLCKER. In that particular circumstance, I think
it's fair to say that it was not thought to be likely. One could
envisage a situation in which the pound was weaker than the others
fairly easily, but there is a general movement that leaves a little
But it's not operational so far as we're
haziness around it.
concerned. Now, the British might want to do something specifically
directed at sterling.
MR. PARTEE. Well, I suppose it's conceivable that we might
want to do intervention in sterling rather than in marks. We haven't
for a long time.
CHAIRMAN VOLCKER. The amount of sterling intervention we
have done that has not been part of a swap arrangement or something
like that is nil, or close to nil, historically. The general thought
here is that, if and when we operate, it would be unlikely to be in
It would more likely be in the mark alone than in
sterling alone.
sterling alone. But it might well be in both or in mark, sterling,
and yen.

Why not in sterling?

I don't know whether you heard it, but the
question was rather quietly put by Governor Rice: Why not in sterling
I don't exclude it entirely on any particular day. We're a
little chary of getting into the business of wanting to support
sterling specifically.

That's where the need is greatest, is it not?
We can't hear those comments.

I said sterling is where the need seems to be
greatest at the present time.


CHAIRMAN VOLCKER. Well, I think in one sense that is true.
But it raises the question of sterling weakness rather than dollar
strength; we have intervened in the mark or the yen on the basis of
those being the other two leading world currencies and we're dealing
with the general relationship of European currencies to the dollar.
When one is dealing in sterling I don't think it has that implication,
and I'm not sure we want to foster an implication that we are
particularly concerned with a sterling support operation as opposed to
a more general problem.
MR. PARTEE. So that's the context in which Sam says that
$167 million leeway in sterling seems sufficient.
CHAIRMAN VOLCKER. You have to understand about all these
figures that we're in this with the Treasury, so any buying that we do
for our own account is multiplied by two in terms of what we do in the

That's the understanding: that we and they will

If the market pressures got strong
enough--. Let me put it this way: I hope that we don't do an
operation doomed to be ineffectual by its niggardly nature, which is
what we've been doing recently. So, while I don't particularly expect
it, I don't consider it inconceivable that we might end up with an
amount of currencies that would involve raising the question of
changing some of these informal limits.
MR. MARTIN. But the phrase "concentrated intervention," Mr.
Chairman, implies that the Japanese and the Germans would be
intervening along with us, right?

"Concerted" not "concentrated."


CHAIRMAN VOLCKER. But we all will be intervening in our own
markets, so the amount and timing of any intervention wouldn't be
simultaneous necessarily. It could be simultaneous when the [hours of
operation of the] markets overlap, but there was a clear understanding
that if the development of the strength in the dollar was pronounced
in Europe, they would intervene. We wouldn't do anything if it's in
the European market; we both might be intervening if both markets were
open. Let's take today, for example: the European markets are now
closed and ours is open. We would be intervening alone today simply
because we are the market in which the dollar's strength developed.
But it's against this clear background that they would pick it up if
it continued strong on Monday in Europe. They wouldn't do anything in
Europe if the dollar weakened. And as I said, there's no specific
time limit on this operation, but nobody is talking about a commitment
here for months. Basically, we're talking in the context of the next
week; and then we'll see what happens.
MR. FORRESTAL. Mr. Chairman, this is Bob Forrestal. I'd
like to ask this question: What do you sense, from your talks, is the
specific strategy or the objective over the next two or three weeks or


whatever it might be--to hold the dollar at a prearranged level or
actually to bring the dollar down, say, below 3.17 deutschemarks?
CHAIRMAN VOLCKER. Neither. I think everybody would be
relatively content, or more than relatively content, if the net result
with intervention or without intervention was that the dollar ended up
somewhat lower than it has been. But we were quite clear that we did
not want to make this operation an overt "drive-the-dollar-down
operation"--that it was U.S. policy to get the dollar down and that we
were going to drive it down by pushing on a declining dollar
operationally. People certainly would be happy about not seeing the
dollar go up, and they will intervene as it goes up, but there is no
If the strength is great enough, it will go up; and I'm
fixed target.
First of all, there is a
sure there is a hope that [unintelligible].
hope that maybe with the announcement and with normal market
developments it won't go up at all and that maybe there won't be any
intervention. If there is, I'm sure there is some hope that the
display of the announcement and the intervention will result in the
But there's nothing magic about a particular
dollar not going up.
MR. PARTEE. Well, I'm no great supporter of intervention as
you know, but I do think the situation has become extreme enough that
it is called for. I think it's a good move.
In the absence of other comments, I will
assume that there is no pronounced objection. I don't think we have
to--though we may well want to--put in the record that we had this
consultation. It's perfectly natural, considering the decisions that
But I don't think we're going to make any
were taken [by the G-5].
decisions, because I think it is all in accordance with our operating
directive and so forth.
While I have you all, if anybody has any comments or burning
questions about the domestic scene or operations you can make a
comment or raise a question. Operationally, of course, with all the
fluctuations and misses and near misses that we have had, we're
operating basically the same as we did when we came out of the Open
You know
Market Committee meeting, however many weeks ago that was.
what the money supply figures are; they're stronger than anticipated
by and large. But at least so far as M1 is concerned I think at this
point it is clearly stronger but not extremely stronger; M2 and M3 are
strong. As for the economy, some of the economic news is on the
firmer side and you all know that.
I don't know what other comments I
ought to make. Hearing none from you, I will call the proceeding to
an end.
Thank you all.