FOMC Minutes

Meeting of the Federal Open Market Committee

November 14-15, 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 Monday afternoon, November 14, 1983, and continuing

on Tuesday, November 15, 1983, at 9:30 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, 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. Kichline, Economist

Mr. Truman, Economist (International)

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

Scheld, and Zeisel, Associate Economists

Mr. Cross, Manager for Foreign Operations,

System Open Market Account

Mr. Sternlight, Manager for Domestic Operations,

System Open Market Account

11/14-15/83

Mr. Frost, Staff Director, Office of Staff Director

for Management, Board of Governors

Mr. Coyne, Assistant to the Board of Governors

Mr. Roberts, Assistant to the Chairman, 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. Henderson, Deputy Associate Director, Division of

International Finance, Board of Governors

Mrs. Low, Open Market Secretariat Assistant,

Board of Governors

Messrs. Forrestal and Wallace, First Vice Presidents,

Federal Reserve Banks of Atlanta and Dallas

Mr. Fousek, Executive Vice President, Federal Reserve

Bank of New York

Messrs. Burns, J. Davis, Koch, Mullineaux, Parthemos, and

Stern, Senior Vice Presidents, Federal Reserve Banks

of Dallas, Cleveland, Atlanta, Philadelphia, Richmond,

and Minneapolis, respectively

Mr. Bisignano, Vice President, Federal Reserve Bank of

San Francisco

Ms. Meulendyke, 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 October 4, 1983, were approved.

By unanimous vote, System open market transactions in Government

securities, agency obligations, and bankers acceptances during the period

October 4 through November 14, 1983, were ratified.

By unanimous vote, the Committee approved the renewal for further

periods of up to one year of the reciprocal currency ("swap") arrangements

having the indicated amounts and maturity dates as shown below.

-3-

11/14-15/83

Amount of

arrangement

Foreign bank

(millions of

Term

Maturity

$ equivalent)

(months)

date

Austrian National

Bank

National Bank of Belgium

Bank of Canada

National Bank of Denmark

$ 250.0

1,000.0

2,000.0

250.0

12/ 2/83

12 mos.

"12/16/83

"12/29/83

"12/29/83

2/83

Bank of England

Bank of France

German Federal Bank

3,000.0

2,000.0

6,000.0

"12/

"12/29/83

"12/29/83

Bank of Italy

Bank of Japan

Bank of Mexico

Netherlands Bank

Bank of Norway

Bank of Sweden

Swiss National Bank

Bank for International

SettlementsSwiss francs

Other authorized

European currencies

3,000.0

5,000.0

700.0

500.0

250.0

300.0

4,000.0

"12/29/83

12/ 2/83

"

2/83

"12/

"12/29/83

2/83

"12/

2/83

"12/

12/ 2/83

"

600.0

"

12/ 2/83

1,250.0

"

12/ 2/83

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

Domestic Open Market Operations was amended to raise from $4 billion

to $5 billion the dollar limit on intermeeting changes in System

account holdings of U.S. government and federal agency securities

for the period from November 16, 1983 through the close of business

on December 20, 1983.

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:

The information reviewed at this meeting suggests

that real GNP is growing at a relatively rapid pace in

the current quarter, although the rate of expansion

appears to have moderated since the spring and summer.

In October, industrial production increased appreciably,

following large gains in previous months. Nonfarm

payroll employment rose substantially further and the

civilian unemployment rate declined 1/2 percentage

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point to 8.8 percent. After changing little on balance

during the summer months, retail sales strengthened in

September and October. Housing starts and permits

declined in September while home sales rose somewhat.

Recent data on new orders and shipments indicate

further strength in the demand for business equipment.

Producer and consumer prices have continued to

increase at about the same pace as in other recent

months. The index of average hourly earnings rose

somewhat more in September and October than in

previous months but over the first ten months of

the year the index has risen more slowly than in 1982.

The foreign exchange value of the dollar has

risen since early October against a trade-weighted

average of major foreign currencies. The U.S. foreign

trade deficit increased considerably in the third

quarter, with imports, especially of petroleum,

rising faster than exports.

After slowing substantially over the summer

months, growth in M2 accelerated in October, while

M3 continued to expand at a moderate rate. Through

October M2 was at a level in the lower portion of

the Committee's range for 1983 and M3 in the upper

portion of its range. M1 continued to grow at a

sluggish pace in October and was in the lower portion

of the Committee's monitoring range for the second

half of the year. Longer-term market rates have

risen somewhat on balance since early October, and

short-term rates generally have fluctuated in a narrow

range.

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

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.

11/14-15/83

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 of 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 aggre

gates. The behavior of M1 and total domestic non

financial debt will be monitored, with the degree of

weight placed on M1 over time dependent on evidence

that velocity characteristics are resuming more pre

dictable 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 existing degree of reserve restraint. 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 continuing strength

of economic recovery and other factors bearing on

the business and inflation outlook, somewhat greater

restraint would be acceptable should the aggregates

expand more rapidly; lesser restraint might be

acceptable in the context of a significant shortfall

11/14-15/83

in growth of the aggregates from current expectations.

Given the relatively slow growth in October, the

Committee anticipates that M1 growth at an annual

rate of around 5 to 6 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, December 20, 1983.

The meeting adjourned.

Secretary