FOMC Minutes

Meeting of the Federal Open Market Committee

February 1-2, 1982

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., starting on Monday, February 1, 1982, at 2:30 p.m. and

continuing on Tuesday, February 2, 1982, at 9:00 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, Timlen, and Winn, Alternate Members

of the Federal Open Market Committee

Messrs. Guffey, Morris, 1/ 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

Mr. Mannion, Assistant General Counsel

Mr. Kichline, Economist

Messrs. Burns, Ettin, 2/ Mullineaux, Prell, Scheld,

Truman, and Zeisel, Associate Economists

1/ Entered the meeting prior to the action to ratify System Open Market trans

actions in Government securities, agency obligations and bankers acceptances.

2/

Attended Tuesday session only.

2/1-2/82

- 2 -

Mr. Cross, Manager for Foreign Operations, System

Open Market Account

Mr. Sternlight, Manager for Domestic Operations,

System Open Market Account

Mr. McIntosh, 1/ First Vice President, Federal Reserve

Bank of Boston

Mr. Coyne, Assistant to the Board of Governors

Mr. Siegman, Associate Director, Division of

International Finance, Board of Governors

Mr. Promisel, 3/ Senior Deputy Associate Director, Division

of International Finance, Board of Governors

Mr. Kohn, Deputy Associate Director, Division of Research

and Statistics, Board of Governors

Messrs. Lindsey and Slifman, 3/ Assistant Directors, Division

of Research and Statistics, Board of Governors

Mr. Johnson, 3/ Economist, Division of Research and

Statistics, Board of Governors

Mrs. Deck, Staff Assistant, Open Market Secretariat,

Board of Governors

Messrs. J. Davis, T. Davis, Fousek, Keran, 1/ Koch,

and Stern, Senior Vice Presidents, Federal Reserve

Banks of Cleveland, Kansas City, New York, San

Francisco, Atlanta, and Minneapolis, respectively

Messrs. Broaddus, Soss, and Syron, Vice Presidents, Federal

Reserve Banks of Richmond, New York, and Boston,

respectively

Mr. Meek, Monetary Adviser, 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 December 21-22, 1981, were approved.

By unanimous vote, System open market transactions in Government

securities, agency obligations, and bankers acceptances during the period

December 22, 1981, through February 1, 1982, were ratified.

1/

Entered the meeting prior to the action to ratify System Open Market trans

actions in Government securities, agency obligations and bankers acceptances.

3/

Left the meeting prior to the action to adopt the domestic policy directive

and returned prior to the action to establish longer-run ranges.

2/1-2/82

With Mrs. Teeters dissenting, the Committee adopted the following

ranges for rates of growth in the monetary aggregates for the period from the

fourth quarter of 1981 to the fourth quarter of 1982:

M1, 2-1/2 to 5-1/2

percent; M2, 6 to 9 percent; and M3, 6-1/2 to 9-1/2 percent.

The associated

range for bank credit was 6 to 9 percent.

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:

The information reviewed at this meeting indicates that

real GNP declined appreciably in the fourth quarter of 1981

and that prices on the average rose much less rapidly than

over the first three quarters of the year. In December

industrial production and nonfarm payroll employment declined

sharply for the third consecutive month, and the unemployment

rate rose an additional 0.5 percentage point to 8.9 percent.

The nominal value of retail sales increased somewhat further,

but the level was still below the average for the third

quarter. Although housing starts expanded, they remained

at a depressed level. The rise in the index of average

hourly earnings was considerably less rapid over the fourth

quarter of 1981 than on the average earlier in the year.

The weighted average value of the dollar against major

foreign currencies rose substantially during January; foreign

monetary authorities intervened considerably to resist the

depreciation of their currencies. In the fourth quarter the

U.S. foreign trade deficit increased from the rate in the

previous two quarters.

Ml grew rapidly in December and January, reflecting

in part rapid expansion in checkable deposits other than

demand accounts. Growth of M2 also was substantial, owing

to strength in the more liquid of the nontransaction com

ponents as well as in M1.

Short-term market interest rates

and bond yields on balance have risen further in recent

weeks, and mortgage interest rates have also increased.

2/1-2/82

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. The Committee agreed that

its objectives would be furthered by growth of M1, M2, and

M3 from the fourth quarter of 1981 to the fourth quarter

of 1982 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. The

associated range for bank credit was 6 to 9 percent.

The Committee seeks behavior of reserve aggregates

over the balance of the quarter consistent with bringing

M1 and M2 over time into their longer-run target ranges

for the year. Taking account of the recent surge in

growth of M1, the Committee seeks no further growth in

M1 for the January-to-March period and growth in M2 at

an annual rate of around 8 percent. Some decline in M1

would be associated with more rapid attainment of the

longer-run range and would be acceptable in the context

of reduced pressure in the money market. 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 12 to 16 percent.

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

on Tuesday, March 30, 1982, beginning at 9:30 a.m.

The meeting adjourned.

Secretary