FOMC Minutes

Meeting of the Federal Open Market Committee

December 19-20, 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, December 19, 1983, at 3:00 p.m., and

continuing on Tuesday, December 20, 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, Black, and Forrestal, Presidents of the Federal

Reserve Banks of San Francisco, Richmond, and Atlanta,

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. R. Davis, T. Davis, Eisenmenger, Prell, Siegman,

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

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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. Gemmill, Senior Associate Director, Division of

International Finance, Board of Governors

Mr. Lindsey, Associate Director, Division of Research

and Statistics, Board of Governors

Mrs. Low, Open Market Secretariat Assistant,

Board of Governors

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

Stern, Senior Vice Presidents, Federal Reserve Banks

of Dallas, Cleveland, Atlanta, Philadelphia, San

Francisco, and Minneapolis, respectively

Messrs. Broaddus and Burger, Vice Presidents, Federal

Reserve Banks of Richmond and St. Louis

Mr. McCurdy, Research Officer, 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 14-15, 1983, 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 February 4, 1983, was accepted.

By unanimous vote, System open market transactions in foreign

currencies during the period November 15 through December 19, 1983, were

ratified.

By unanimous vote, System open market transactions in Government

securities, agency obligations, and bankers acceptances during the period

November 15 through December 19, 1983, were ratified.

12/19-20/83

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By unanimous vote, the Committee extended the temporary increase

to $5 billion in the limit specified in paragraph 1(a) of the authorization

for domestic open market operations for the intermeeting period beginning

December 21, 1983.

With Mr. Martin 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 has grown at a relatively rapid pace in

the current quarter, although the rate of expansion

appears to have moderated since the spring and summer.

In November, industrial production and nonfarm payroll

employment increased appreciably further and the civilian

unemployment rate declined 0.4 percentage point to 8.4

percent. Retail sales rose substantially in November

following sizable gains in September and October.

Housing starts increased in November to a level close

to their third-quarter average. Recent data indicate

continuing expansion in business capital spending.

Producer prices were little changed on average in

October and November, and consumer prices continued

to increase in October at about the same pace as in

other recent months. The index of average hourly

earnings changed little in November after rising

somewhat faster in September and October than in

previous months; over the first eleven months of

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

The foreign exchange value of the dollar has

risen considerably further since mid-November against

a trade-weighted average of major foreign currencies.

In October the U.S. foreign trade deficit was markedly

higher than in the third quarter, reflecting a sharp

rise in imports.

After slowing substantially over the summer months,

growth in M2 and M3 strengthened in October and November.

Ml continued to grow at a sluggish pace in November but

increased substantially in early December. Through

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November, M2 was at a level in the lower portion of the

Committee's range for 1983, M3 was close to the upper

limit of its range, and M1 was near the lower end of

the Committee's monitoring range for the second half

of the year. Most interest rates have risen somewhat

since mid-November.

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 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 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.

12/19-20/83

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 con

ditions in domestic credit and foreign exchange markets.

The Committee seeks in the short run to maintain at

least 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 percent from November

to March. The Committee anticipates that M1 growth at

an annual rate of around 6 percent from November to March

will be consistent with its objectives for the broader

aggregates, and that expansion in total domestic non

financial debt would continue at around its recent pace.

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. The Chairman may call for Committee consulta

tion 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.

The meeting adjourned.

Secretary