FOMC Minutes

Meeting of the Federal Open Market Committee

May 18, 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., on Tuesday, May 18, 1982, at 9:15 a.m.

PRESENT:

Mr. Volcker, 1/ Chairman

Mr. Balles

Mr. Black

Mr. Ford

Mr. Gramley

Mrs. Horn

Mr. Martin

Mr. Partee

Mr. Rice

Mrs. Teeters

Mr. Wallich

Mr. Timlen, Alternate for Mr. Solomon

Messrs. Guffey, Keehn, Morris, and Roos, Alternate Members

of the Federal Open Market Committee

Messrs. Boehne, and Boykin, Presidents of the Federal Reserve

Banks of Philadelphia, and Dallas, respectively

Mr. Axilrod, Staff Director

Mr. Altmann, Secretary

Mr. Bernard, Assistant Secretary

Mrs. Steele, Deputy Assistant Secretary

Mr. Mannion, Assistant General Counsel

Mr. Kichline, Economist

Messrs. J. Davis, Ettin, Keran, Koch, Prell,

Siegman, and Ziesel, Associate Economists

Mr. Sternlight, 2/ Manager for Domestic Operations,

System Open Market Account

1/ Left the meeting prior to the approval of the minutes of actions and returned

prior to the action to ratify System Open Market transactions in Government

securities, agency obligations, and bankers acceptances.

2/ Entered the meeting prior to the action to ratify System open market

transactions in Government securities, agency obligations, and bankers

acceptances.

5/18/82

- 2 -

Mr. Coyne, Assistant to the Board of Governors

Mr. Gemmill, Associate Director, Division of

International Finance, Board of Governors

Mr. Kohn, Senior Deputy Associate Director, Division of

Research and Statistics, Board of Governors

Mr. Lindsey, Assistant Director, Division of Research

and Statistics, Board of Governors

Mr. Robinson,3/ Assistant Director, Division of Federal

Reserve Bank Operations, Board of Governors

Mrs. Deck, Staff Assistant, Open Market Secretariat,

Board of Governors

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

Mullineaux, Scheld, and Stern, Senior Vice

Presidents, Federal Reserve Banks of St. Louis,

Dallas, Kansas City, Boston, New York, Philadelphia,

Chicago, and Minneapolis, respectively

Mr. Broaddus, Ms. Greene, and Mr. Soss, 4/ Vice Presidents,

Federal Reserve Banks of Richmond, New York,

and New York, respectively

Ms. Meulendyke, Senior Economist, Federal Reserve Bank of

New York

Secretary's Note: Advices had been received of the

election by the Federal Reserve Banks of Cleveland

and Chicago of Mrs. Karen N. Horn, President of the

Federal Reserve Bank of Cleveland, as member of the

Federal Open Market Committee to represent those

Federal Reserve Banks for the balance of the one-year

term expiring February 28, 1983; and it appeared that

Mrs. Horn was legally qualified to serve. Mrs. Horn

had executed her oath of office prior to this meeting.

By unanimous vote, the minutes of actions taken at the meeting of

the Federal Open Market Committee held on March 29-30, 1982, were approved.

3/

Left the meeting following the acceptance of the report of examination

of the System open market account.

4/

Entered the meeting prior to the action to adopt the domestic policy

directive.

- 3 -

5/18/82

The report of examination of the System open market account, made

by the Board's Division of Federal Reserve Bank Operations as of the close

of business May 29, 1981, was accepted.

By unanimous vote, System open market transactions in Government

securities, agency obligations, and bankers acceptances during the period

March 30 through May 17, 1982, were ratified.

With Mrs. Teeters 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 suggests that

real GNP will change little in the current quarter after the

appreciable further decline in the first quarter, as business

inventory liquidation moderates from last quarter's extra

ordinary rate. In April the nominal value of retail sales

expanded, while industrial production and nonfarm payroll

employment continued to decline. The unemployment rate rose

0.4 percentage point to 9.4 percent. Although housing starts

edged up in March for the fifth consecutive month, they remained

at a depressed level. The rate of increase in prices on the

average appears to be slowing somewhat further in the current

quarter; so far this year both the consumer price index and

the producer price index for finished goods have risen little

on balance, and the advance in the index of average hourly

earnings has remained at a reduced pace.

The weighted average value of the dollar against major

foreign currencies, after rising somewhat further in early

April, has fallen sharply over the past month, reflecting

in part a decline in U.S. interest rates relative to foreign

rates and market expectations of further declines. The U.S.

foreign trade deficit in the first quarter was one-third less

than in the preceding quarter.

- 4 -

5/18/82

M1 increased sharply in April, but the expansion was

concentrated in the first half of the month and was largely

retraced later. Growth of M2 moderated somewhat, owing to a

slackening of the expansion in the nontransaction component.

Short-term market interest rates and bond yields on balance

have declined since the end of March, and mortgage interest

rates have edged down further.

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 trans

actions. At its meeting in early February, 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.

In the short run, the Committee seeks behavior of reserve

aggregates consistent with growth of M1 and M2 from March to

June at annual rates of about 3 percent and 8 percent respectively.

The Committee also noted that deviations from these targets should

be evaluated in light of changes in the relative importance of NOW

accounts as a savings vehicle. 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 10 to 15

percent.

It was agreed that the next meeting of the Federal Open Market

Committee would be held on Thursday, July 1, 1982, at 9:30 a.m.

The meeting adjourned.

Secretary