FOMC Minutes

Meeting of the Federal Open Market Committee

November 7, 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 Wednesday, November 7, 1984, at 9:00 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,1/ 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. Oltman, Deputy General Counsel

Mr. Kichline, Economist

Mr. Truman, Economist (International)

Messrs. Burns, J. 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

1/

Left meeting before action to adopt domestic policy directive.

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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. Fousek, Executive Vice President, Federal Reserve

Bank of New York

Mr. Balbach, Ms. Munnell, Messrs. Parthemos, Scheld, and

Ms. Tschinkel, Senior Vice Presidents, Federal

Reserve Banks of St. Louis, Boston, Richmond,

Chicago, and Atlanta, respectively

Messrs. Cacy, Bisignano, and Judd, Vice Presidents, Federal

Reserve Banks of Kansas City, San Francisco, and

San Francisco, respectively

Ms. Lovett, Assistant Vice President, 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 2, 1984, were approved.

By unanimous vote, System open market transactions in foreign

currencies during the period October 2 through November 6, 1984, were ratified.

By unanimous vote, the Committee authorized the Manager to negotiate

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.

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Foreign bank

Amount of

arrangement

(millions of

$ equivalent)

Austrian National Bank

National Bank of Belgium

Bank of Canada

National Bank of Denmark

Bank of England

Bank of France

German Federal Bank

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

$

250.0

1,000.0

2,000.0

250.0

3,000.0

2,000.0

6,000.0

3,000.0

5,000.0

700.0

500.0

250.0

300.0

4,000.0

600.0

1,250.0

Term

(months)

Maturity

date

12 mos.

"12/17/84

"

"12/28/84

"

"12/28/84

"12/28/84

"

"

"12/

"

"

"12/

"

12/ 3/84

12/28/84

12/ 3/84

12/28/84

12/ 3/84

3/84

12/28/84

12/ 3/84

3/84

12/ 3/84

"12/

"

3/84

12/ 3/84

By unanimous vote, System open market transactions in Government

securities and agency obligations during the period October 2 through

November 6, 1984, were ratified.

With Mr. Gramley 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 indicates

a mixed pattern of developments but on balance suggests

that economic activity is continuing to expand, though

at a considerably more moderate pace than earlier in

the year. Nonfarm payroll employment rose substantially

outside of manufacturing in October, following a moderate

increase in September, and the civilian unemployment

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rate was unchanged at 7.4 percent. Industrial pro

duction fell in September, partly because of strikes,

and available information suggests little increase

in October. Retail sales and housing starts rebounded

in September after two months of decline. Information

on outlays and spending plans suggests slower ex

pansion in business fixed investment, following

exceptionally rapid growth earlier, and inventory

investment, having risen relative to sales in

recent months, also appears to be slowing. Since

the beginning of the year, broad measures of prices

generally have continued to rise at rates close to,

or somewhat above, those recorded in 1983, and the

index of average hourly earnings has risen somewhat

more slowly.

Growth of the monetary aggregates strengthened

in September, but data available for October indicated

that M1 declined during the month, growth of M2 slowed

somewhat, and expansion of M3 picked up further. From

the fourth quarter of 1983 through October, M1 grew

at a rate in the lower half 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 a bit above

the upper limit of its range. Growth in total domestic

nonfinancial debt appears to be continuing above the

Committee's monitoring range for the year, reflecting

large government borrowing; private credit growth,

though relatively strong, has moderated in recent

months. Interest rates have fallen substantially

further since the meeting of the Committee on

October 2.

Over the past month, the foreign exchange value

of the dollar against a trade-weighted average of

major foreign currencies has continued to fluctuate

widely, rising to a new high in mid-October but

subsequently declining to somewhat below its level at

the time of the previous meeting. The merchandise

trade deficit in the third quarter was substantially

above the first-half rate as a sharp rise in non-oil

imports exceeded some further growth in exports.

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.

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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 non

financial 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 bench

marks 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 evaluations of conditions in domestic credit

and foreign exchange markets.

In the implementation of policy in the short run,

the Committee seeks to reduce somewhat existing pressures

on reserve positions. This action is expected to be

consistent with growth of M2 and M3 at annual rates of

around 7-1/2 and 9 percent during the period from

September to December. M1 is expected to grow over

the period at an annual rate of around 3 percent, less

than anticipated earlier in view of the decline in

October. In light of that decline, more rapid growth

of M1 would be acceptable. Lesser restraint on reserve

positions would be sought in the event of significantly

slower growth in the monetary aggregates, evaluated in

relation to the strength of the business expansion and

inflationary pressures, domestic and international

financial market conditions, and the rate of credit

growth. Conversely, greater restraint might be accept

able in the event of substantially more rapid monetary

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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 7 to 11 percent.

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

held on Tuesday, December 18, 1984.

The meeting adjourned.

Secretary's note: Subsequent to this meeting, the

Committee unanimously approved temporary increases

in the limit on changes between Committee meetings

in System Account holdings of U.S. government and

federal agency securities specified in paragraph

1(a) of the authorization for domestic open market

operations. The first action, increasing the

limit from $4 billion to $6 billion was effective

November 21, 1984; the second increase, from

$6 billion to $8 billion, was effective on

December 5, 1984. Both increases applied to

the intermeeting period ending with the close

of business on December 18, 1984.

Secretary