FOMC Minutes

Meeting of the Federal Open Market Committee

December 20-21, 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 Monday, December 20, 1982, at 3:00 p.m. and

continuing on Tuesday, December 21, 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

Mr. Partee

Mr. Rice

Mrs. Teeters

Mr. Wallich

Messrs. Guffey, Keehn, 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

Mr. Bernard, Assistant Secretary

Mrs. Steele,1/ Deputy Assistant Secretary

Mr. Bradfield, General Counsel

Mr. Oltman,1/ Deputy General Counsel

Mr. Kichline, Economist

Messrs. Ettin,1/ J. Davis,1/ R. Davis,1/ Keran,1/ Koch,1/

Prell,1/ Siegman,1/ Truman, and Zeisel,1/ Associate

Economists

1/

Left the meeting prior to discussion and adoption of domestic policy

directive.

12/20-21/82

Mr. Sternlight, Manager for Domestic Operations,

System Open Market Account

Mr. Cross,1/ Manager for Foreign Operations,

System Open Market Account

Mr. Coyne, Assistant to the Board of Governors

Mr. Gemmill,2/ Associate Director, Division of International

Finance, Board of Governors

Mr. Kohn,2/ Senior Deputy Associate Director, Division of

Research and Statistics, Board of Governors

Mr. Lindsey,2/ Assistant Director, Division of Research

and Statistics, Board of Governors

Mrs. Low, Open Market Secretariat Assistant,

Board of Governors

Messrs. Balbach,2/ Burns,2/ T. Davis,2/ Eisenmenger,2/

Mullineaux,2/ Scheld,2/ and Stern,2/ Senior Vice

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

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

respectively

Messrs. Broaddus,2/ and Soss, Vice Presidents, Federal Reserve

Banks of Richmond, and New York

Ms. Meulendyke,2/ Manager, Securities Department, 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 November 16, 1982, were approved.

By unanimous vote, System open market transactions in Government

securities, agency obligations, and bankers acceptances during the period

November 16 through December 20, 1982, were ratified.

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 through the close of

business on February 9, 1983.

1/

2/

Entered the meeting following the action to ratify transactions in

the System open market account.

Left the meeting prior to discussion and adoption of domestic policy

directive.

12/20-21/82

Secretary's Note:

- 3 -

All of the preceding actions were taken

on Monday, December 20, 1982.

By unanimous vote, System open market transactions in foreign

currencies during the period November 16 through December 21, 1982, were

ratified.

Renewal for further periods of three months of drawings on the

System by the Bank of Mexico maturing January 7 through February 17, 1983,

was noted without objection.

With Messrs. Black and 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

that real GNP declined in the fourth quarter, although

final sales apparently were maintained, and that the

rise in prices remained much less rapid than in 1981.

Retail sales and housing activity have strengthened in

recent months, but business fixed investment apparently

has weakened further and efforts to reduce inventories

have continued. In November industrial production and

nonfarm payroll employment declined further, and the

unemployment rate rose 0.4 percentage point to 10.8

percent. Initial claims for unemployment insurance,

although down from the early autumn peaks, have

remained relatively high. In recent months the

advance in the index of average hourly earnings has

slowed appreciably further.

The weighted average value of the dollar against

major foreign currencies has declined from peaks reached

in early November. The U.S. merchandise trade deficit

rose sharply further in October.

12/20-21/82

- 4 -

Growth of M1 has remained rapid in recent months,

while growth of M2 and M3 has continued at about or

somewhat below the rates of earlier in the year. On

balance short-term market interest rates have declined

since mid-November, while bond yields have risen somewhat

in response to unusually heavy borrowing by businesses

and governments; mortgage rates have edged down further.

The Federal Reserve announced reductions in the discount

rate from 9-1/2 percent to 9 percent on November 19 and

to 8-1/2 percent on December 13.

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 should

unusual precautionary demands for money and liquidity

be evident in the light of current economic uncertain

ties. The Committee had also earlier indicated that it

was tentatively planning to continue the current ranges

for 1983, but it will review that decision carefully at

its February 1983 meeting in light of economic develop

ments and institutional changes associated with the new

deposit accounts authorized by the Depository Institutions

Deregulation Committee.

Specification of the behavior of M1 over the months

ahead remains subject to substantial uncertainty because

of special circumstances in connection with the public's

response to the new deposit accounts available at deposi

tory institutions. The difficulties in interpretation of

M1 continue to suggest that much less than usual weight

be placed on movements in that aggregate during the coming

quarter. The institutional changes also add a degree of

uncertainty to the behavior of the broader monetary aggre

gates.

12/20-21/82

- 5

In all the circumstances, the Committee seeks to

maintain expansion in bank reserves consistent with

growth of M2 of around 9-1/2 percent at an annual rate,

and of M3 at about an 8 percent rate, from December to

March, allowing in the case of M2 for modest shifting

into the new money market accounts from large-denomination

CD's or market instruments. The Committee indicated that

greater growth would be acceptable if analysis of incoming

data and other evidence from bank and market reports in

dicate that the new money market accounts are generating

more substantial shifts of funds into broader aggregates

from market instruments. The Chairman may call for

Committee consultation if it appears to the Manager for

Domestic Operations that pursuit of the monetary objec

tives 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.

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

held on Tuesday and Wednesday, February 8-9, 1983, beginning in the

afternoon on Tuesday, February 8, 1983.

The meeting adjourned.

On January 25-26, 1983, by unanimous

Secretary's Note:

vote, Committee members voted to approve an additional

increase of $1.5 billion, to $5.5 billion, in the limit

on changes between Committee meetings in System Account

holdings of U.S. government and federal agency securities

specified in paragraph 1(a) of the authorization for

domestic open market operations, effective immediately,

for the period ending with the close of business on

February 9, 1983.

Secretary