FOMC Minutes

Meeting of the Federal Open Market Committee

August 24, 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, August 24, 1982, at 9:45 a.m.

PRESENT:

Mr. Volcker, Chairman

Mr. Solomon, Vice Chairman

Mr. Balles

Mr. Black

Mr. Ford

Mrs. Horn

Mr. Martin

Mr. Partee

Mr. Rice

Mrs. Teeters

Mr. Wallich

Messrs. Keehn, Morris, and Roos, Alternate Members of the Federal

Open Market Committee

Messrs. Boykin and Corrigan, Presidents of the Federal Reserve

Banks of Dallas and Minneapolis, respectively

Mr. Axilrod, Staff Director

Mr. Bernard, Assistant Secretary

Mrs. Steele, Deputy Assistant Secretary

Mr. Bradfield, 1/ General Counsel

Mr. Oltman, 1/ Deputy General Counsel

Mr. Mannion, Assistant General Counsel

Mr. Kichline, Economist

Messrs. J. Davis, Keran, Koch, Parthemos, Prell, Truman,

and Zeisel, Associate Economists

Mr. Sternlight, Manager for Domestic Operations,

System Open Market Account

Mr. Cross, Manager for Foreign Operations,

System Open Market Account

1/ Entered the meeting following the action to ratify System open market

transactions in foreign currencies.

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8/24/82

Messrs. Czerwinski and Smoot, First Vice Presidents, Federal

Reserve Banks of Kansas City and Philadelphia,

respectively

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. Promisel, Senior Deputy Associate Director, Division of

International Finance, Board of Governors

Mr. Lindsey, Assistant Director, Division of Research

and Statistics, Board of Governors

Mrs. Low, Secretary, Open Market Secretariat,

Board of Governors

Messrs. Eisenmenger, Fousek, Scheld, and Stern,

Senior Vice Presidents, Federal Reserve Banks

of Boston, New York, Chicago, and Minneapolis,

respectively

Messrs. Burger, Cacy, and Soss, Vice Presidents,

Federal Reserve Banks of St. Louis, Kansas City,

and New York, respectively

Mr. Pearce, Assistant Vice President, Federal Reserve

Bank of Dallas

Mr. Lang, Research Officer, Federal Reserve Bank of

Philadelphia

Ms. Lovett, Securities Trading Officer, Federal Reserve

Bank of New York

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

the Federal Open Market Committee held on June 30 - July 1, 1982, and

July 15, 1982, were approved.

By unanimous vote, System open market transactions in foreign

currencies during the period July 1 through August 23, 1982, were ratified.

By unanimous vote, a special reciprocal currency arrangement with

the Bank of Mexico of $325 million in addition to the regular $700 million

arrangement specified in paragraph 2 of the Authorization for Foreign

Currency Operations was approved, effective August 28, 1982, for the period

through August 23, 1983.

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8/24/82

By unanimous vote, System open market transactions in Government

securities, agency obligations, and bankers acceptances during the period

July 1 through August 23, 1982, were ratified.

With Mr. Wallich 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

only a little further advance in real GNP in the current

quarter, following a relatively small increase in the

second quarter, while prices on the average are continuing

to rise more slowly than in 1981. In July the nominal

value of retail sales rose somewhat from a sharply reduced

June level; housing starts increased substantially, though

from a relatively low rate; and industrial production and

nonfarm payroll employment were essentially unchanged.

The unemployment raterose 0.3 percentage point to 9.8

percent. Over the first seven months of the year the

advance in the index of average hourly earnings was

considerably less rapid than during 1981.

The weighted average value of the dollar against

major foreign currencies, while fluctuating over a wide

range, has changed little on balance since late June

despite a sharp decline in U.S. interest rates relative

to foreign rates. Demand for dollars appeared to reflect

concern about economic and financial difficulties abroad.

The U.S. foreign trade deficit in the second quarter was

somewhat below the first-quarter deficit, with petroleum

imports down substantially.

Ml declined slightly in June and July, while growth of

M2 moderated somewhat from its average pace earlier in the

year. Business demands for credit, especially short-term

credit, remained generally strong. Market interest rates

have declined sharply since around midyear, reflecting

a shift in market sentiment about the outlook for interest

rates against the background of strains in financial

markets, relatively weak economic indicators, and legis

lative action on the federal budget. The Federal Reserve

discount rate was reduced in three steps from 12 percent

to 10-1/2 percent during the period.

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8/24/82

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. At its meeting in early

February, the Committee had 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 began a review

of these ranges at its meeting on June 30 - July 1, and

at a meeting on July 15, it reaffirmed the targets for the

year set in February. At the same time the Committee

agreed that growth in the monetary and credit aggregates

around the top of the indicated ranges would be acceptable

in the light of the relatively low base period for the

M1 target and other factors, and that it would tolerate

for some period of time growth somewhat above the target

range should unusual precautionary demands for money and

liquidity be evident in the light of current economic un

certainties. The Committee also indicated that it was

tentatively planning to continue the current ranges for

1983 but that it would review that decision carefully

in the light of developments over the remainder of 1982.

In the short run, the Committee continues to seek 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 percent 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. 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 7 to 11 percent.

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

Committee would be held on Tuesday, October 5, 1982, at 9:30 a.m.

The meeting adjourned.

Assistant Secretary