FOMC Minutes

Meeting of the Federal Open Market Committee

January 30-31, 1984

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, January 30, 1984, at 2:00 p.m., and

continuing on Tuesday, January 31, 1984, 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,1/ Deputy Assistant Secretary

Mr. Bradfield, General Counsel

Mr. Oltman,1/ Deputy General Counsel

Mr. Kichline, Economist

Mr. Truman, Economist (International)

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

Siegman,1/ Scheld,1/ and Zeisel,1/ Associate Economists

Mr. Cross, Manager for Foreign Operations,

System Open Market Account

Mr. Sternlight, Manager for Domestic Operations,

System Open Market Account

1/

Attended Monday session and Tuesday Session after action to establish

long-run ranges.

1/30-31/84

-2-

Mr. Coyne, Assistant to the Board of Governors

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

Mr. Kohn,1/ Deputy Staff Director, Office of Staff

Director for Monetary and Financial Policy,

Board of Governors

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

International Finance, Board of Governors

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

and Statistics, Board of Governors

Messrs. Freund 2/ and Madigan,2/ Economists, Division of

Research and Statistics, Board of Governors

Mrs. Low, Open Market Secretariat Assistant,

Board of Governors

Mr. Fousek,1/ Executive Vice President, Federal Reserve Bank

of New York

Messrs. Burns,1/ J. Davis,1/ Keran,1/ Koch,1/ Mullineaux,1/

Parthemos,1/ and Stern,1/ Senior Vice Presidents, Federal

Reserve Banks of Dallas, Cleveland, San Francisco, Atlanta,

Philadelphia, Richmond, and Minneapolis, respectively

Mr. Meek,1/ Vice President and Monetary Adviser,

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 December 19-20, 1983, were approved.

By unanimous vote, System open market transactions in foreign

currencies during the period December 20, 1983 through January 30, 1984, were

ratified.

By unanimous vote, System open market transactions in Government

securities, agency obligations, and bankers acceptances during the period

December 20, 1983 through January 30, 1984, were ratified.

Secretary's Note: All of the above actions were taken on

Monday, January 30, 1984.

1/

2/

Attended Monday session and Tuesday session after action to establish

long-run ranges.

Attended part of Monday session only.

1/30-31/84

With Mr. Morris dissenting, the Committee voted for the following

longer-run policy:

The Committee established growth ranges for

the broader aggregates of 6 to 9 percent for both

M2 and M3 for the period from the fourth quarter of

1983 to the fourth quarter of 1984. The Committee

also considered that a range of 4 to 8 percent for

M1 would be appropriate for the same period, taking

account of the possibility that, in the light of the

changed composition of M1, its relationship to GNP

over time may be shifting. Pending further experience,

growth in that aggregate will need to be interpreted

in the light of the growth in the other monetary

aggregates, which for the time being would continue

to receive substantial weight. The associated range

for total domestic nonfinancial debt was set at

8 to 11 percent for the year 1984.

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 indicates

that the advance in real GNP moderated in the fourth

quarter, following rapid expansion in the spring and

summer. In December, industrial production and nonfarm

payroll employment increased somewhat further and the

civilian unemployment rate declined 0.2 percentage

point to 8.2 percent. Retail sales were reported to

have changed little in December following sizable

gains in preceding months. Housing starts declined

in December but for the fourth quarter as a whole

were close to their average for the year. Recent

data indicate substantial strength in business

capital spending. Producer prices were about

unchanged on average in November and December, and

consumer prices increased at about the moderate

pace recorded for the year as a whole. The index

of average hourly earnings rose somewhat faster

in the fourth quarter than in the previous quarter,

but for the year 1983 the index increased more

slowly than in 1982.

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The foreign exchange value of the dollar against

a trade-weighted average of major foreign currencies

has appreciated somewhat further since the latter

part of December, with most of the rise occurring in early

January. In the fourth quarter the U.S. foreign trade

deficit was markedly higher than in the third quarter,

reflecting a sharp rise in non-oil imports.

M2 and M3 have expanded at moderate rates over the

past two months. Expansion in M1 apparently accelerated

in January, following several months of reduced growth.

By the fourth quarter M2 was at a level close to the

midpoint of the Committee's range for 1983, M3 was

around the upper limit of its range, and M1 was around

the middle of the Committee's monitoring range for

the second half of the year. Most interest rates have

declined somewhat since the latter part of December.

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 an improved

pattern of international transactions. The Committee

established growth ranges for the broader aggregates

of 6 to 9 percent for both M2 and M3 for the period

from the fourth quarter of 1983 to the fourth quarter

of 1984. The Committee also considered that a range

of 4 to 8 percent for M1 would be appropriate for the

same period, taking account of the possibility that,

in the light of the changed composition of M1, its

relationship to GNP over time may be shifting. Pending

further experience, growth in that aggregate will need

to be interpreted in the light of the growth in the

other monetary aggregates, which for the time being

would continue to receive substantial weight. The

associated range for total domestic nonfinancial debt

was set at 8 to 11 percent for the year 1984.

The Committee understood that policy implementation

would require continuing appraisal of the relationships

not only among the various measures of money and credit

but also between those aggregates and nominal GNP, in

cluding evaluation of conditions in domestic credit

and foreign exchange markets.

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In the short run, the Committee seeks to maintain

the existing degree of pressure on bank reserve positions,

anticipating that approach will be consistent with growth

of M2 and M3 each at annual rates of about 8 percent

and M1 at an annual rate of about 7 percent during the

period from December to March. Growth in nonfinancial

debt is expected to be within the range established for

the year. Lesser restraint would be acceptable in the

context of a shortfall in monetary and credit growth

from current expectations, while somewhat greater

restraint might be acceptable with more rapid expansion

of the aggregates, both viewed in the context of the

strength of the business expansion and inflationary

pressures.

In implementing policy in the weeks ahead, the Manager

was instructed to take account of the uncertainties asso

ciated with the introduction of the system of more con

temporaneous reserve requirements, particularly including

the possibility that depository institutions, during a

transition period, may desire to hold more excess reserves.

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, March 27, 1984.

The meeting adjourned.

Secretary