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Federal Open Market Committee
Conference Call
July 26,




Greenspan, Chairman
Corrigan, Vice Chairman

Messrs. Boehne, Boykin, and Stern, Alternate
Members of the Federal Open Market Committee
Messrs. Black, and Parry, Presidents of the
Federal Reserve Banks of Richmond and
San Fransciso, respectively

Bernard, Assistant Secretary
Gillum, Deputy Assistant Secretary
Prell, Economist
Truman, Economist

Mr. Lindsey, Associate Economist
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
Mr. Keleher, Assistant to Governor Johnson,
Office of Board Members, Board of Governors
Ms. Low, Open Market Secretariat Assistant,
Division of Monetary Affairs, Board of
Mr. Guynn, First Vice President, Federal Reserve
Bank of Atlanta
Ms. Tschinkel, Senior Vice President, Federal
Reserve Bank of Atlanta
Mr. Sniderman, Vice President, Federal Reserve
Bank of Cleveland

Transcript of Federal Open Market Committee Conference Call
of July 26, 1989
CHAIRMAN GREENSPAN. Good afternoon, everyone. There are two
issues I'd like to discuss this afternoon. One is monetary policy and
the other is the Mexican agreement. On the issue of monetary policy:
As a result of data we have just gotten recently, which I'll mention
in a moment, the Desk has been instructed to lower the borrowing
requirement from $600 million to $550 million, which is equivalent to
moving the funds rate from around 9-1/4 to 9-3/8 percent down to the 9
to 9-1/8 percent area.
The two most recent indications of continued
softening [in the economy] are: (1) the initial claims figures, which
will be released tomorrow; and (2) information from the purchasing
managers' survey.
The initial claims data show a rather sharp increase for the
week ended July 15th to the highest level in a year to 18 months. As
best I can judge, part of it reflects the peculiarities of the effects
of the July 4th weekend plus the beginning of a quarter. Even with
all the seasonal adjustment we can do, we never quite get that out.
But extracting from that there does appear to be some real information
in that increase--in part automotive layoffs, but a little more than
Secondly, and more importantly, information that will be coming
out on the purchasing managers' survey, which must be kept
confidential until it is released--and it's very crucial that it be
kept confidential--is likely to show a significant weakening in new
In fact, their early estimates suggest that the change in new
orders, which is the measure they seasonally adjust, is likely to be
There is no evidence in the report, as
the lowest number since 1982.
best I can judge, that suggests that the softening is accelerating in
any material way; but there is clear evidence that the economy
continues to weaken.
The automobile sales figures for the middle 10
days of July--which appeared initially to be somewhat stronger using
the BEA seasonals--on our seasonals look to be soft, with very little
pickup evident in the data.
Finally, on the side of softness, the
seasonally adjusted employment cost index continues to be well behaved
and pretty much coming in according to expectations.
The issues that suggest our having to be cautious on monetary
policy are: (1) the welcomed improvement in existing home sales, which
may be the first sign of stabilization and not deterioration; and (2)
the worrisome acceleration now in the money supply. This all suggests
to me that, having made this move, we should probably stay put for a
while until we see how the money supply works out and how a number of
other elements within the economy continue to move. I would generally
characterize the economy at this stage as one that continues to soften
but does not yet exhibit any accelerated weakness. The latter could
occur, but it's not in any of the data that I can see at this stage.
Unless and until that occurs, it would be inappropriate for us to move
down further, certainly not before the next FOMC meeting. Before I
move on to the Mexican issue I would like to solicit any comments or
feelings on this that any of the participants at this meeting might
If not, I would ask our Vice Chairman to give us some insights
into the Mexican negotiations.
Jerry, are you there?

Yes, I'm here.

[Secretary's note:
The reports of Vice Chairman Corrigan and
Mr. Truman on the Mexican negotiations were not transcribed.]