FOMC Minutes

Meeting of the Federal Open Market Committee

October 2, 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 Tuesday, October 2, 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. 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, Lindsey,

Siegman, and Stern, Associate Economists

Mr. Sternlight, Manager for Domestic Operations,

System Open Market Account

Mr. Cross, Manager for Foreign Operations,

System Open Market Account

10/2/84

Mr. Coyne, Assistant to the Board of Governors

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

Mr. Gemmill, Staff Adviser, Division of International

Finance, Board of Governors

Mrs. Low, Open Market Secretariat Assistant,

Board of Governors

Mr. Griffith, First Vice President, Federal Reserve

Bank of San Francisco

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, Ms. Clarkin, and Mr. Fieleke,

Vice Presidents, Federal Reserve Banks of Richmond,

St. Louis, New York, and Boston, respectively

By unanimous vote, the minutes of actions taken at the meeting of the

Federal Open Market Committee held on August 21, 1984, were approved.

By unanimous vote, System open market transactions in foreign

currencies during the period August 21 through October 1, 1984, were ratified.

By unanimous vote, System open market transactions in Government

securities and agency obligations during the period August 21 through

October 1, 1984, were ratified.

With Messrs. Martin and Rice and Ms. Seger 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 the expansion in economic activity slowed appre

ciably in the third quarter from a strong pace earlier

in the year. In August, industrial production rose

only slightly and gains in nonfarm payroll employment

10/2/84

-3-

moderated further; retail sales and housing starts

declined for the second month in a row. The civilian

unemployment rate was unchanged in August at 7.5 percent.

Information on outlays and spending plans suggests slower

expansion in business fixed investment, following excep

tionally rapid growth in recent quarters. Since the

beginning of the year, average prices and the index of

average hourly earnings have risen more slowly than

in 1983.

In August the monetary aggregates expanded at

relatively slow rates, but data available for September

suggested some strengthening. From the fourth quarter

of 1983 through September, M1 apparently grew at a

rate close to the midpoint of the Committee's range

for 1984, M2 at a rate somewhat below the midpoint

of its longer-run range, and M3 at a rate near the

upper limit of its range. Growth in total domestic

nonfinancial debt appears to be continuing at a pace

above the Committee's monitoring range for the year,

reflecting large government borrowing along with

relatively strong private credit growth. Interest

rates generally have fallen somewhat further since

the August meeting of the Committee.

Over the past month, the foreign exchange value

of the dollar against a trade-weighted average of

major foreign currencies has fluctuated widely under

often volatile market conditions, reaching a new

high in the latter part of September; since then

the dollar has declined somewhat. The merchandise

trade deficit rose sharply to a record high rate

in the July-August period.

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 the July

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

10/2/84

at 8 to 11 percent for the year 1984. It was antici

pated 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 6 to 11 percent.

The Committee understood that policy implemen

tation 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 implementation of policy in the short run,

the Committee seeks to maintain the lesser degree of

restraint on reserve positions sought in recent weeks.

This action is expected to be consistent with growth

in M1, M2, and M3 at annual rates of around 6, 7-1/2,

and 9 percent, respectively, during the period from

September to December. A somewhat further lessening

of restraint on reserve positions would be acceptable

in the event of significantly slower growth in the

monetary aggregates, evaluated in relation to the

strength of business expansion and inflationary

pressures, domestic and international financial

market conditions, and the rate of credit growth.

Conversely, greater restraint might be acceptable

in the event of substantially more rapid monetary

growth and indications of significant strengthening

of economic activity and inflationary pressures.

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.

-5

10/2/84

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

held on Wednesday, November 7, 1984.

The meeting adjourned.

Secretary