FOMC Minutes

Meeting of the Federal Open Market Committee

November 16, 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, November 16, 1982, at 9:00 a.m.

PRESENT:

Mr. Volcker, Chairman

Mr. Solomon, Vice Chairman

Mr. Balles

Mr. Black

Mr. Ford

Mr. Gramley

Mrs. Horn

Mr. Martin 1/

Mr. Partee

Mr. Rice

Mrs. Teeters

Mr. Wallich

Messrs. Guffey, Keehn, Morris, Roos, and Timlen,2/

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

Mr. Bernard, Assistant Secretary

Mrs. Steele,2/ Deputy Assistant Secretary

Mr. Bradfield, General Counsel

Mr. Oltman,2/ Deputy General Counsel

Mr. Kichline, Economist

Messrs. Ettin,2/ J. Davis,2/ R. Davis,2/ Keran,2/ Koch,2/

Parthemos,2/ Prell,2/ Siegman,2/ Truman, and Zeisel,2/

Associate Economists

1/

2/

Entered the meeting following acceptance of Report of Examination of

System Open Market Account.

Left the meeting prior to discussion and adoption of domestic policy

directive.

-2-

11/16/82

Mr. Sternlight, Manager for Domestic Operations,

System Open Market Account

Mr. Cross, Manager for Foreign Operations,

System Open Market Account

Mr. Coyne, Assistant to the Board of Governors

Mr. Gemmill,1/ Associate Director, Division of International

Finance, Board of Governors

Mr. Kohn,1/ Senior Deputy Associate Director, Division of

Research and Statistics, Board of Governors

Mr. Lindsey,1/ Assistant Director, Division of Research

and Statistics, Board of Governors

Mrs. Low, Open Market Secretariat Assistant,

Board of Governors

Messrs. Balbach,1/ Burns,1/ T. Davis,1/ Eisenmenger,1/

Mullineaux,1/ Scheld,1/ and Stern,1/ Senior Vice

Presidents, Federal Reserve Banks of St. Louis, Dallas,

Kansas City, Boston, Philadelphia, Chicago, and Minneapolis,

respectively

Mr. Soss, Vice President, Federal Reserve Bank of

New York

Ms. Clarkin,1/ Assistant Vice President, 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, 1982, were approved.

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 April 23, 1982, was accepted.

By unanimous vote, System open market transactions in foreign

currencies during the period October 5 through November 15, 1982, were

ratified.

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:

1/ Left the meeting prior to discussion and adoption of domestic policy directive.

- 3 -

11/16/82

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

Settlements

Swiss 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.

-

Maturity

date

12/ 3/82

12/17/82

12/29/82

12/29/82

12/ 3/82

12/29/82

12/29/82

12/29/82

12/ 3/82

12/ 3/82

12/29/82

12/ 3/82

12/ 3/82

12/ 3/82

600.0

12/ 3/82

1,250.0

12/ 3/82

Renewal for further periods of three months of drawings on the

System by the Bank of Mexico maturing December 7 through December 21, 1982,

was noted without objection.

By unanimous vote, paragraph 1(a) of the Authorization for Domestic

Open Market Operations was amended to raise to $4 billion the dollar limit on

intermeeting changes in System account holdings of U.S. Government and Federal

agency securities, effective immediately, for the period from October 6, 1982

through the close of business on November 16, 1982.

By unanimous vote, System open market transactions in Government

securities, agency obligations, and bankers acceptances during the period

October 5 through November 15, 1982, were ratified.

11/16/82

-4With Mr. Ford 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

little change in real GNP in the fourth quarter and

continuation of the rise in prices at a much less rapid

pace than in 1981. In October the nominal value of

retail sales edged up, but was little higher than in

the second and third quarters; industrial production

and nonfarm payroll employment continued to decline;

and the unemployment rate rose another 0.3 percentage

point to 10.4 percent. Initial claims for unemployment

insurance have remained exceptionally high. In September

and the third quarter as a whole, housing starts had

strengthened. In recent months the advance in the

index of average hourly earnings has remained consider

ably less rapid than during 1981.

The weighted average value of

major foreign currencies continued

end of September to mid-November.

trade deficit in the third quarter

the rate in the first two quarters

the dollar against

to appreciate from the

The U.S. merchandise

was more than double

of the year.

Growth of M1, already rapid in August and September,

accelerated sharply in October in association with the

maturing of a large volume of all savers certificates.

Growth of M2 and M3 picked up from.sluggish rates in

September, but remained below the brisk pace of earlier

in the year. Most short-term market interest rates have

declined on balance since early October, after a reversal

in September, and bond yields and mortgage rates have

declined further. On October 8 the Federal Reserve

announced a reduction in the discount rate from 10 percent

to 9-1/2 percent. Quality spreads in the money markets,

which had widened, have narrowed in recent weeks as

interest rates have declined, and common stock prices

have advanced sharply.

11/16/82

-5-

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. In July, the

Committee agreed that these objectives would be furthered

by reaffirming the monetary growth ranges for the period

from the fourth quarter of 1981 to the fourth quarter of

1982 that it had set at the February meeting. These

ranges were 2-1/2 to 5-1/2 percent for M1, 6 to 9 percent

for M2, and 6-1/2 to 9-1/2 percent for M3. The associated

range for bank credit was 6 to 9 percent. 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

uncertainties. 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.

Specification of the behavior of M1 over the balance

of the year remains subject to substantial uncertainty

because of special circumstances in connection with the

reinvestment of funds from maturing all savers certifi

cates and the public's response to the new account

directly competitive with money market funds mandated

by recent legislation. The difficulties in interpreta

tion of M1 continue to suggest that much less than

usual weight be placed on movements in that aggregate

during the current quarter.

In all the circumstances, the Committee seeks to

maintain expansion in bank reserves needed for an orderly

and sustained flow of money and credit, consistent with

growth of M2 (and M3) of around 9-1/2 percent at an annual

rate from September to December. Somewhat slower growth,

bringing those aggregates around the upper part of the

ranges set for the year, would be acceptable and desirable

in a context of declining interest rates. Should economic

and financial uncertainties lead to exceptional liquidity

demands, somewhat more rapid growth in the broader aggre

gates would be tolerated. 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 6 to 10 percent.

-6

11/16/82

It was agreed that the next meeting of the Committee would

be held on Tuesday, December 21, 1982, beginning at 9:30 a.m.

The meeting adjourned.

Secretary