FOMC Minutes

Meeting of the Federal Open Market Committee

November 17, 1981

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 17, 1981, at 9:30 a.m.

PRESENT:

Mr. Volcker, Chairman

Mr. Solomon, Vice Chairman

Mr. Boehne

Mr. Boykin

Mr. Corrigan

Mr. Gramley

Mr. Keehn

Mr. Partee

Mr. Rice

Mr. Schultz

Mrs. Teeters

Mr. Wallich

Messrs. Balles, Black, Ford, and Winn, Alternate Members of

the Federal Open Market Committee

1/

Messrs. Guffey,

Morris and Roos, Presidents of the Federal

Reserve Banks of Kansas City, Boston, and St. Louis,

respectively

Mr. Axilrod, Staff Director

Mr. Altmann, Secretary

Mr. Bernard, Assistant Secretary

Mrs. Steele, Deputy Assistant Secretary

Mr. Bradfield, General Counsel 1/

Mr. Oltman, Deputy General Counsel

Mr. Mannion, Assistant General Counsel

Mr. Kichline, Economist

Messrs. Burns, Ettin, Mullineaux, Prell, Scheld, Truman,

and Zeisel, Associate Economists

1/ Left the meeting prior to the action to adopt the domestic policy

directive.

- 2 -

11/17/81

Mr. Cross, Manager for Foreign Operations, System

Open Market Account

Mr. Sternlight, Manager for Domestic Operations,

System Open Market Account

Mr. Coyne, Assistant to the Board of Governors

Messrs. Gemmill and Siegman, Associate Directors, Division

of International Finance, Board of Governors

Mr. Lindsey, Assistant Director, Division of Research

and Statistics, Board of Governors

Mrs. Deck, Staff Assistant, Open Market Secretariat,

Board of Governors

Messrs. Balbach, J. Davis, T. Davis, Eisenmenger, Fousek,

Keran, and Koch, Senior Vice Presidents, Federal

Reserve Banks of St. Louis, Cleveland, Kansas City,

Boston, New York, San Francisco, and Atlanta,

respectively

Messrs. Broaddus and Syron, Vice Presidents, Federal

Reserve Banks of Richmond and Boston

Mr. Supel, Senior Economist, Federal Reserve Bank of

Minneapolis

Ms. Clarkin, Senior Trading Officer, 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 5-6, 1981, were approved.

By unanimous vote, the Committee approved the renewal for further

periods of up to one year of the following swap arrangements having the

indicated amounts and maturity dates:

- 3

11/17/81

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.

"

"

"12/29/81

"12/

"

"

"

"

"12/

"12/29/81

"12/

"12/

"12/

Maturity

date

12/ 4/81

12/18/81

12/29/81

4/81

12/29/81

12/29/81

12/29/81

12/ 4/81

4/81

4/81

4/81

4/81

600.0

12/ 4/81

1,250.0

12/ 4/81

By unanimous vote, System open market transactions in Government

securities, agency obligations, and bankers acceptances during the period

October 6 through November 16, 1981, were ratified.

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:

11/17/81

The information reviewed at this meeting suggests that

real GNP is declining appreciably in the current quarter and

that prices on the average are rising somewhat less rapidly

than over the first three quarters of the year. In October

the nominal value of total retail sales dropped; industrial

production fell more than in September; and nonfarm payroll

employment, especially in manufacturing, declined sharply.

The unemployment rate rose from 7.5 percent to 8.0 percent.

Housing starts edged down in September from an already de

pressed level. Over the first 10 months of 1981, the rise

in the index of average hourly earnings was less rapid than

during 1980.

The weighted average value of the dollar against major

foreign currencies has declined only a little since early

October, although U.S. short-term interest rates have declined

more than foreign rates. A reduced U.S. foreign trade deficit

in September brought the deficit for the third quarter close

to the second-quarter rate.

M1-B (adjusted for estimated shifts into NOW accounts)

expanded in October almost as much as it had declined in

September, and growth of M2 picked up. The level of adjusted

M1-B remained well below the lower end of the Committee's

range for growth over the year from the fourth quarter of

1980 to the fourth quarter of 1981; the level of M2 was at

the upper end of its range for the year. Short-term market

interest rates have declined substantially since the end of

September, and bond yields have also dropped from the peaks

generally reached about then. On October 30 the Board of

Governors announced a reduction in Federal Reserve basic

discount rates from 14 to 13 percent. The surcharge on

frequent borrowings of large depository institutions had

been reduced from 3 to 2 percentage points on October 9,

and on November 16 the Board removed the remaining 2 per

centage points.

The Federal Open Market Committee seeks to foster

monetary and financial conditions that will help to reduce

inflation, promote a resumption of growth in output on a

sustainable basis, and contribute to a sustainable pattern

of international transactions. At its meeting in early

July, the Committee agreed that its objectives would be

furthered by reaffirming the monetary growth ranges for

the period from the fourth quarter of 1980 to the fourth

quarter of 1981 that it had set at the February meeting.

11/17/81

These ranges included growth of 3-1/2 to 6 percent for

M-B, abstracting from the impact of flows into NOW

accounts on a nationwide basis, and growth of 6 to 9

percent and 6-1/2 to 9-1/2 percent for M2 and M3 respec

tively. The Committee recognized that the shortfall in

M1-B growth in the first half of the year partly reflected

a shift in public preferences toward other highly liquid

assets and that growth in the broader aggregates had been

running at about or somewhat above the upper end of their

ranges. In light of its desire to maintain moderate growth

in money over the balance of the year, the Committee ex

pected that growth in M1-B for the year would be near the

lower end of its range. At the same time, growth in the

broader aggregates might be high in their ranges. The

associated range for bank credit was 6 to 9 percent.

The Committee also tentatively agreed that for the period

from the fourth quarter of 1981 to the fourth quarter of

1982 growth of M1, M2, and M3 within ranges of 2-1/2 to

5-1/2 percent, 6 to 9 percent, and 6-1/2 to 9-1/2 percent

respectively would be appropriate. These ranges will be

reconsidered as warranted to take account of developing

experience with public preferences for NOW and similar

accounts as well as changing economic and financial

conditions.

The Committee, after noting a moderate shortfall in

growth of M1-B in October from the target path set at the

last meeting, seeks behavior of reserve aggregates con

sistent with growth of M1-B from October to December at an

annual rate of about 7 percent (after allowance for the

impact of flows into NOW accounts) and with growth of M2

at an annual rate around 11 percent. 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 11 to 15 percent.

It was agreed that the next meeting of the Committee would be held

on Tuesday, December 22, 1981, beginning at 9:30 a.m.

The meeting adjourned.

Secretary