FOMC Minutes

Meeting of the Federal Open Market Committee

October 4, 1983

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, October 4, 1983, at 9:00 a.m.

PRESENT:

Mr. Volcker, Chairman

Mr. Solomon, Vice Chairman

Mr. Gramley

Mr. Guffey

Mr. Keehn

Mr. Martin

Mr. Morris

Mr. Partee

Mr. Rice

Mr. Roberts

Mrs. Teeters

Mr. Wallich

Messrs. Boehne, Boykin, Corrigan, and Mrs. Horn, Alternate

Members of the Federal Open Market Committee

Messrs. Balles and Black, Presidents of the Federal Reserve

Banks of San Francisco and Richmond, respectively

Mr. Axilrod, Staff Director and Secretary

Mr. Bernard, Assistant Secretary

Mrs. Steele, Deputy Assistant Secretary

Mr. Bradfield, General Counsel

Mr. Oltman, Deputy General Counsel

Mr. Kichline, Economist

Mr. Truman, Economist (International)

Messrs. Balbach, R. Davis, T. Davis, Eisenmenger, Prell,

Scheld, Siegman,1/ and Zeisel, Associate Economists

Mr. Cross, Manager for Foreign Operations,

System Open Market Account

Mr. Sternlight, Manager for Domestic Operations,

System Open Market Account

1/

Entered the meeting after the action to approve the minutes of the

August 23, 1983, meeting.

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Mr. Coyne,1/ Assistant to the Board of Governors

Mr. Kohn, Deputy Staff Director, Office of Staff

Director for Monetary and Financial Policy,

Board of Governors

Mr. Lindsey, Associate Director, Division of Research

and Statistics, Board of Governors

Mr. Gemmill, Senior Associate Director, Division of

International Finance, Board of Governors

Mr. Roberts, Assistant to the Chairman, Board of Governors

Mrs. Low, Open Market Secretariat Assistant,

Board of Governors

Mr. Forrestal, First Vice President, Federal Reserve

Bank of Atlanta

Messrs. J. Davis, Keran, Koch, Mullineaux, and Stern,

Senior Vice Presidents, Federal Reserve Banks of

Cleveland, San Francisco, Atlanta, Philadelphia,

and Minneapolis, respectively

Mr. Broaddus, Vice President, Federal Reserve Bank of

Richmond

Mr. Pearce, Assistant Vice President, Federal Reserve

Bank of Dallas

Ms. Lovett, 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 August 23, 1983, were approved.

By unanimous vote, System open market transactions in Government

securities, agency obligations, and bankers acceptances during the period

August 23 through October 3, 1983, were ratified.

By unanimous vote, 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:

1/ Entered the meeting after the action to ratify transactions in the System

Open Market Account.

10/4/83

The information reviewed at this meeting suggests

that real GNP continued to grow rapidly in the third

quarter, although the rate of expansion moderated from

that in the second quarter. Industrial production and

employment increased appreciably further in August,

following large gains in previous months, and the

civilian unemployment rate remained at 9.5 percent.

After rising sharply in the spring, growth in consumer

spending has moderated substantially. Housing starts

rose in August but permits turned down. Data on new

orders and shipments generally continued to indicate

strength in the demand for business equipment. Producer

and consumer prices increased somewhat more in August

than in other recent months, but over the first eight

months of the year average prices and the index of

average hourly earnings have risen more slowly than

in 1982.

After slowing substantially in July, growth in M2

remained at a reduced pace over the August-September

period, while expansion in M3 picked up.

Through

September M2 is estimated to be at a level in the

lower portion of the Committee's range for 1983 and

M3 in the upper portion of its range.

Growth in M1

decelerated considerably further in August-September

and moved within the Committee's monitoring range for

the second half of the year.

Interest rates have

declined somewhat since mid-August.

The foreign exchange value of the dollar, as

measured by its weighted average value against major

foreign currencies, has fluctuated within a relatively

narrow range since mid-August.

The U.S. foreign

trade deficit rose substantially in July-August from

the second-quarter rate, reflecting a further increase

in imports of a broad range of goods.

The Federal Open Market Committee seeks to foster

monetary and financial conditions that will help to

reduce inflation further, promote growth in output on

a sustainable basis, and contribute to a sustainable

pattern of international transactions. At its meeting

in July the Committee reconsidered the growth ranges

for monetary and credit aggregates established earlier

for 1983 in furtherance of these objectives and set

tentative ranges for 1984. The Committee recognized

that the relationships between such ranges and ultimate

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economic goals have become less predictable; that the

impact of new deposit accounts on growth of the

monetary aggregates cannot be determined with a high

degree of confidence; and that the availability of

interest on large portions of transaction accounts

may be reflected in some changes in the historical

trends in velocity.

Against this background, the Committee at its

July meeting reaffirmed the following growth ranges

for the broader aggregates: for the period from

February-March of 1983 to the fourth quarter of 1983,

7 to 10 percent at an annual rate for M2; and for

the period from the fourth quarter of 1982 to the

fourth quarter of 1983, 6-1/2 to 9-1/2 percent for

M3. The Committee also agreed on tentative growth

ranges for the period from the fourth quarter of 1983

to the fourth quarter of 1984 of 6-1/2 to 9-1/2

percent for M2 and 6 to 9 percent for M3. The

Committee considered that growth in M1 in a range

of 5 to 9 percent from the second quarter of 1983

to the fourth quarter of 1983, and in a range of

4 to 8 percent from the fourth quarter of 1983 to

the fourth quarter of 1984, would be consistent with

the ranges for the broader aggregates. The associated

range for total domestic nonfinancial debt was reaffirmed

at 8-1/2 to 11-1/2 percent for 1983 and tentatively set

at 8 to 11 percent for 1984.

In implementing monetary policy, the Committee agreed

that substantial weight would continue to be placed on the

behavior of the broader monetary aggregates. The behavior

of M1 and total domestic nonfinancial debt will be monitored,

with the degree of weight placed on M1 over time dependent

on evidence that velocity characteristics are resuming more

predictable patterns. The Committee understood that policy

implementation would involve continuing appraisal of the

relationships between the various measures of money and

credit and nominal GNP, including evaluation of conditions

in domestic credit and foreign exchange markets.

The Committee seeks in the short run to maintain the

slightly lesser degree of reserve restraint sought in recent

weeks. The action is expected to be associated with growth

of M2 and M3 at annual rates of around 8-1/2 percent from

September to December, consistent with the targets established

for these aggregates for the year. Depending on evidence

about the strength of economic recovery and other factors

bearing on the business and inflation outlook, lesser

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restraint would be acceptable in the context of a significant

shortfall in growth of the aggregates from current expecta

tions, while somewhat greater restraint would be acceptable

should the aggregates expand more rapidly. The Committee

anticipates that M1 growth at an annual rate of around 7

percent from September to December will be consistent with

its fourth-quarter objectives for the broader aggregates,

and that expansion in total domestic nonfinancial debt

would remain within the range established for the year.

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.

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

held on Tuesday, November 15, 1983.

The meeting adjourned.

Secretary