FOMC Minutes

Meeting of the Federal Open Market Committee

July 16-17, 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, July 16, 1984, at 3:00 p.m., and continuing

on Tuesday, July 17, 1984, at 9:30 a.m.

PRESENT:

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mrs

Mr.

Mr.

Mr.

Ms.

Mr.

Volcker, Chairman

Solomon, Vice Chairman

Boehne

Boykin

Corrigan

Gramley

Horn

Martin

Partee

Rice

Seger

Wallich

Messrs. Balles, Black, Forrestal, and Keehn, Alternate Members

of the Federal Open Market Committee

Messrs. Guffey, Morris, and Roberts, Presidents of the Federal

Reserve Banks of Kansas City, Boston, and St. Louis,

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. Burns, J. Davis, R. Davis, Kohn, Lang,

Prell, Stern, and Zeisel, Associate Economists

Mr. Cross, Manager for Foreign 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. Promisel, Senior Associate Director, Division of

International Finance, Board of Governors

Mr. Gemmill,1/ Staff Adviser, Division of International

Finance, Board of Governors

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

Research and Statistics, Board of Governors

Mrs. Low, Open Market Secretariat Assistant,

Board of Governors

Messrs. T. Davis, Keran, Scheld, and Ms. Tschinkel,

Senior Vice Presidents, Federal Reserve Banks of

Kansas City, San Francisco, Chicago, and Atlanta,

respectively

Messrs. Broaddus, Burger, Fieleke, and Meek, Vice Presidents,

Federal Reserve Banks of Richmond, St. Louis, Boston,

and New York, respectively

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 May 21-22, 1984, were approved.

Secretary's Note:

Tuesday session.

The following actions were taken at the

By unanimous vote, System open market transactions in foreign

currencies during the period May 22 through July 16, 1984, were ratified.

By unanimous vote, System open market transactions in Government

securities, agency obligations, and bankers acceptances during the period

May 22 through July 16, 1984, were ratified.

1/

Attended Monday session only.

2/

Attended portion of meeting on Monday and Tuesday related to

consideration of the Committee's longer-run objectives for

monetary and credit aggregates.

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By unanimous vote, the following longer-run policy for 1984 was

reaffirmed by the Committee:

The Committee agreed at this meeting to reaffirm

the ranges for monetary growth that it had

established in January: 4 to 8 percent for M1

and 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 associated range for total

domestic nonfinancial debt was also reaffirmed at

8 to 11 percent for the year 1984. It was anticipated

that M3 and nonfinancial debt might increase at rates

somewhat above the upper limits of their 1984 ranges,

given developments in the first half of the year,

but the Committee felt that higher target ranges

would provide inappropriate benchmarks for evaluating

longer-term trends in M3 and credit growth.

By unanimous vote, the following longer-run policy for 1985 was

adopted by the Committee:

For 1985 the Committee agreed on tentative ranges

of monetary growth, measured from the fourth quarter

of 1984 to the fourth quarter of 1985, of 4 to 7

percent for M1, 6 to 8-1/2 percent for M2, and

6 to 9 percent for M3. The associated range for

nonfinancial debt was set at 8 to 11 percent.

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,

including evaluation of conditions in domestic credit

and foreign exchange markets.

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:

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-4-

The information reviewed at this meeting suggests

that the expansion in economic activity is continuing at

a strong pace, but there are indications of moderation

in some sectors. In May and June, industrial production

and retail sales expanded further, though at a somewhat

slower pace than earlier in the year. Nonfarm payroll

employment rose substantially further in both months

and the civilian unemployment rate fell to 7.1 percent

in June. Housing starts declined in May to a rate

appreciably below the average in the first four months

of 1984. Information on outlays and spending plans

continues to suggest strength in business fixed in

vestment. Since the beginning of the year, average

prices and the index of average hourly earnings have

risen more slowly than in 1983.

M1 grew rapidly in May and June after having changed

little in April, while M2 continued to expand moderately.

M3 growth slowed somewhat in June but was relatively

strong over the second quarter. From the fourth quarter

of 1983 through June, M1 grew at a rate somewhat below

the upper limit of the Committee's range for 1984; M2

increased at a rate a little below the midpoint of its

longer-run range, while M3 expanded at a rate above

the upper limit of its range. Total domestic non

financial debt continued to grow in the second quarter

at a pace above the Committee's monitoring range for

the year, reflecting very large government borrowing

along with strong private credit growth. Interest

rates have fluctuated considerably since the May

meeting of the Committee. Financial markets were

affected by concerns arising from international debt

problems. On balance, rates on private short-term

securities rose further, while rates on Treasury

bills were about unchanged; in long-term debt markets,

rates on most private obligations changed little

while those on Treasury bonds declined.

The foreign exchange value of the dollar against

a trade-weighted average of major foreign currencies

has risen considerably further since mid-May to a

level above its peak in early January. The merchandise

trade deficit rose further in April-May compared with

the first quarter; an increase in oil and non-oil

imports exceeded a slight rise in exports.

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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. In furtherance

of these objectives the Committee agreed at this

meeting to reaffirm the ranges for monetary growth

that it had established in January: 4 to 8 percent

for M1 and 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 associated range for total

domestic nonfinancial debt was also reaffirmed at

8 to 11 percent for the year 1984. It was anticipated

that M3 and nonfinancial debt might increase at rates

somewhat above the upper limits of their 1984 ranges,

given developments in the first half of the year,

but the Committee felt that higher target ranges

would provide inappropriate benchmarks for evaluating

longer-term trends in M3 and credit growth. For

1985 the Committee agreed on tentative ranges of

monetary growth, measured from the fourth quarter

of 1984 to the fourth quarter of 1985, of 4 to 7

percent for M1, 6 to 8-1/2 percent for M2, and

6 to 9 percent for M3. The associated range for

nonfinancial debt was set at 8 to 11 percent.

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,

including evaluation of conditions in domestic credit

and foreign exchange markets.

In the short run, the Committee seeks to maintain

existing pressures on reserve positions. This action

is expected to be consistent with growth in M1, M2,

and M3 at annual rates of around 5-1/2, 7-1/2, and 9

percent respectively during the period from June to

September. Somewhat greater reserve restraint would

be acceptable in the event of more substantial growth

of the monetary aggregates, while somewhat lesser

restraint might be acceptable if growth of the monetary

aggregates slowed significantly. In either case, such

a change would be considered only in the context of

appraisals of the continuing strength of the business

expansion, inflationary pressures, financial market

7/16-17/84

conditions, and the rate of credit growth. 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 8 to 12 percent.

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

held on Tuesday, August 21, 1984.

The meeting adjourned.

Secretary