FOMC Minutes

Meeting of the Federal Open Market Committee

June 30 - July 1, 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 Wednesday, June 30, 1982, at 3:10 p.m.,

and continuing on Thursday, July 1, 1982, at 9:15 a.m.

PRESENT:

Mr. Volcker, Chairman

Mr. Solomon, Vice Chairman

Mr. Balles

Mr. Black

Mr. Ford

Mr. Gramley

Mr. Martin

Mr. Partee

Mr. Rice

Mrs. Teeters

Mr. Wallich

Mr. Keehn, Alternate for Mrs. Horn

Messrs. Guffey, Morris, and Roos, Alternate Members of the

Federal Open Market Committee

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

Reserve Banks of Philadelphia, Dallas, and Minneapolis,

respectively

Mr. Axilrod, Staff Director

Mr. Altmann, Secretary

Mrs. Steele, Deputy Assistant Secretary

Mr. Bradfield, General Counsel

Mr. Oltman, Deputy General Counsel

Mr. Mannion,1/ Assistant General Counsel

Mr. Kichline, Economist

Messrs. R. Davis, Keran, Koch, Siegman, Truman

and Zeisel, Associate Economists

1/

Attended Thursday session only.

6/30 - 7/1/82

- 2 Mr. O'Brien, Deputy 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

Messrs. Lindsey and Slifman, Assistant Directors,

Division of Research and Statistics, Board of Governors

Mr. Johnson, Economist, Division of Research and

Statistics, Board of Governors

Mrs. Deck, Staff Assistant, Open Market Secretariat,

Board of Governors

Mr. MacDonald, First Vice President, Federal Reserve

Bank of Cleveland

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

Mullineaux, Scheld, and Stern, Senior Vice

Presidents, Federal Reserve Banks of St. Louis,

Dallas, Kansas City, Boston, Philadelphia,

Chicago, and Minneapolis, respectively

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

Federal Reserve Banks of Richmond, New York,

and New York, respectively

Mr. Meek, Monetary Adviser, Federal Reserve Bank of

New York

Mr. Erceg, Assistant Vice President, Federal Reserve

Bank of Cleveland

Ms. Meulendyke, Senior Economist, 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 May 18, 1982, were approved.

With Messrs. Black and Ford, Mrs. Teeters, and Mr. Wallich dissenting,

the Federal Reserve Bank of New York was authorized and directed, until other

wise directed by the Committee, to execute transactions in the System Account

in accordance with the following domestic policy directive:

6/30 - 7/1/82

- 3 -

The information reviewed at this meeting suggests

that real GNP changed little in the second quarter, after

the appreciable further decline in the first quarter, as

business inventory liquidation moderated from an extra

ordinary rate. In May the nominal value of retail sales

continued to pick up, while industrial production declined

only a little further and nonfarm payroll employment was

essentially unchanged. The unemployment rate edged up

0.1 percentage point to 9.5 percent. Housing starts rose

appreciably from a depressed level.

The price index for gross domestic business product

appears to have risen at a relatively slow rate in the

second quarter. Over the first five months of this year

the producer price index for finished goods was virtually

stable, and the advance in the index of average hourly

earnings remained at a reduced pace. The consumer price

index rose sharply in May, after a small net increase over

the preceding four months.

The weighted average value of the dollar against major

foreign currencies has risen sharply over the past month,

reaching its highest level since early 1971, in response

to a rise in U.S. interest rates relative to foreign rates

as well as to hostilities in the Middle East. The U.S.

foreign trade deficit in the first five months of 1982 was

at a rate substantially less than in the fourth quarter of

last year, as imports declined more than exports.

M1 declined somewhat in May, after its sharp rise in

April, while growth of M2 remained substantial. Business

demands for credit, especially short-term credit, were

exceptionally strong. Short-term market interest rates

and bond yields generally have risen since late May, and

mortgage interest rates have increased.

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

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. These ranges were under review

at this meeting.

6/30 - 7/1/82

-4-

In the short run, the Committee seeks behavior of reserve

aggregates consistent with growth of M1 and M2 from June to

September at annual rates of about 5 percent and about 9 per

cent respectively. Somewhat more rapid growth would be

acceptable depending on evidence that economic and financial

uncertainties are leading to exceptional liquidity demands

and changes in financial asset holdings. It was also noted

that seasonal uncertainties, together with increased social

security payments and the initial impact of the tax cut on

cash balances, might lead to a temporary bulge in the monetary

aggregates, particularly M1. 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.

By unanimous vote, System open market transactions in foreign

currencies and transactions in Government securities, agency obligations,

and bankers acceptances during the period May 18 through June 30, 1982,

were ratified.

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

Committee would be held on Tuesday, August 24, 1982, at 9:30 a.m.

The meeting adjourned.

Secretary