FOMC Minutes

Meeting of the Federal Open Market Committee

June 29-30, 1988

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, June 29, 1988, at 3:00 p.m. and continuing

on Thursday, June 30, 1988, at 9:00 a.m.

PRESENT:

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Ms.

Greenspan, Chairman

Corrigan, Vice Chairman

Angell

Black

Forrestal

Heller

Hoskins

Johnson

Kelley

Parry

Seger

Messrs. Guffey, Keehn, Melzer, and Morris, Alternate

Members of the Federal Open Market Committee

Messrs. Boehne, Boykin, and Stern, Presidents of the

Federal Reserve Banks of Philadelphia, Dallas, and

Minneapolis, respectively

Mr. Kohn, Secretary and Economist

Mr. Bernard, Assistant Secretary

Mr. Bradfield, General Counsel

Mr. Patrikis, 1/ Assistant General Counsel

Mr. Prell, Economist

Mr. Truman, Economist

Messrs. Broaddus, J. Davis, R.Davis, Lindsey,

Siegman, Simpson, Slifman, and Ms. Tschinkel,

Associate Economists

Mr. Sternlight, Manager for Domestic Operations, System

Open Market Account

Mr. Cross, Manager for Foreign Operations, System

Open Market Account

1/

Attended Thursday's session only.

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6/29-30/88

Mr. Coyne, Assistant to the Board, Board of Governors

Mr. Ettin, Deputy Director, Division of Research and

Statistics, Board of Governors

Mr. Promisel, Senior Associate Director, Division of

International Finance, Board of Governors

Mr. Keleher, Assistant to Governor Johnson, Office of

Board Members, Board of Governors

Mr. Wajid, Assistant to Governor Heller, Office of

Board Members, Board of Governors

Messrs. Rea 1/ and Whitesell, Economists, Division of

Monetary Affairs, Board of Governors

Mr. Oliner, 1/ Economist, Division of Research and Statistics,

Board of Governors

Ms. Low, Open Market Secretariat Assistant, Division of

Monetary Affairs, Board of Governors

Mr. Thomson, Executive Vice President, Federal Reserve

Bank of San Francisco

Messrs. Balbach, T. Davis, Rolnick, Rosenblum,

and Scheld, Senior Vice Presidents, Federal Reserve

Banks of St. Louis, Kansas City, Minneapolis,

Dallas, and Chicago, respectively

Messrs. McNees and Meyer, Vice Presidents, Federal Reserve

Banks of Boston and Philadelphia, respectively

Ms. Krieger, Section Chief, Open Market Function, 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 17, 1988, were approved.

By unanimous vote, System open market transactions in foreign

currencies during the period May 17, 1988, through June 28, 1988 were

ratified.

By unanimous vote, System open market transactions in government

securities and federal agency obligations during the period May 17, 1988,

through June 28, 1988, were ratified.

1/

Attended portion of meeting related to consideration of the Committee's

longer-run objectives for monetary and debt aggregates.

6/29-30/88

By unanimous vote, the following ranges for growth in the broader

aggregates and nonfinancial debt for 1988 and the role of M1 were approved

by the Committee:

The Federal Open Market Committee seeks monetary

and financial conditions that will foster price

stability over time, promote growth in output on a

sustainable basis, and contribute to an improved

pattern of international transactions. In futherance

of these objectives, the Committee reaffirmed at this

meeting the ranges it had established in February for

growth of 4 to 8 percent for both M2 and M3, measured

from the fourth quarter of 1987 to the fourth quarter

of 1988. The monitoring range for growth in total

domestic nonfinancial debt was also maintained at

7 to 11 percent for the year.

With respect to M1,the Committee reaffirmed

its decision in February not to establish a specific

target for 1988 and also decided not to set a tentative

range for 1989. The behavior of this aggregate will

continue to be evaluated in the light of movements

in its velocity, developments in the economy and

financial markets, and the nature of emerging price

pressures.

With Ms.

Seger dissenting, the following longer-run policy for

1989 was appproved by the Committee:

For 1989, the Committee agreed on tentative

ranges for monetary growth, measured from the

fourth quarter of 1988 to the fourth quarter of

1989, of 3 to 7 percent for M2 and 3-1/2 to 7-1/2

percent for M3. The Committee set the associated

monitoring range for growth in total domestic non

financial debt at 6-1/2 to 10-1/2 percent. It was

understood that all these ranges were provisional

and that they would be reviewed in early 1989 in

the light of intervening developments.

With Messrs. Angell and Kelley and Ms. Seger dissenting from the

operational paragraph on policy implementation in the period immediately

ahead, 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:

6/29-30/88

The information reviewed at this meeting suggests

that economic activity has continued to expand at a

fairly vigorous pace. Growth in total nonfarm payroll

employment moderated somewhat in April and May. The

civilian unemployment rate rose to 5.6 percent in May,

a level just below its average in the first quarter.

Industrial production advanced considerably in April

and May. Retail sales were little changed on balance

over the two months after rising appreciably in the

first quarter. Available data indicate that business

capital spending has remained at the high level reached

in the first quarter. Housing starts fell sharply in

May, but other indicators suggested little change in

the pace of recent housing activity. The nominal

U.S. merchandise trade deficit declined substantially

in April, as imports dropped sharply and exports

were essentially unchanged. Most measures indicate

that prices and wages have risen somewhat more

rapidly in recent months. Prices of a broad range

of commodities, particularly agricultural goods,

have increased sharply in the past few weeks.

Short-term interest rates have risen since the

Committee's meeting on May 17, while bond yields

have moved lower. The trade-weighted foreign

exchange value of the dollar in terms of the other

G-10 currencies appreciated considerably over the

intermeeting period.

Expansion of M2 and M3 slowed considerably in

May and M1 was about unchanged, but data available

for June suggested some pickup in monetary growth.

From a fourth-quarter base, M2 and M3 have grown at

rates in the upper portion of the ranges established

by the Committee for 1988. Expansion in total

domestic nonfinancial debt for the year thus far

appears to be at a pace somewhat below that in 1987.

The Federal Open Market Committee seeks monetary

and financial conditions that will foster price

stability over time, promote growth in output on a

sustainable basis, and contribute to an improved

pattern of international transactions. In furtherance

of these objectives, the Committee reaffirmed at this

meeting the ranges it had established in February for

growth of 4 to 8 percent for both M2 and M3, measured

from the fourth quarter of 1987 to the fourth quarter

of 1988. The monitoring range for growth in total

domestic nonfinancial debt was also maintained at

7 to 11 percent for the year.

6/29-30/88

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For 1989, the Committee agreed on tentative

ranges for monetary growth, measured from the

fourth quarter of 1988 to the fourth quarter of

1989, of 3 to 7 percent for M2 and 3-1/2 to 7-1/2

percent for M3. The Committee set the associated

monitoring range for growth in total domestic non

financial debt at 6-1/2 to 10-1/2 percent. It was

understood that all these ranges were provisional

and that they would be reviewed in early 1989 in

the light of intervening developments.

With respect to M1, the Committee reaffirmed

its decision in February not to establish a specific

target for 1988 and also decided not to set a

tentative range for 1989. The behavior of this

aggregate will continue to be evaluated in the

light of movements in its velocity, developments

in the economy and financial markets, and the

nature of emerging price pressures.

In the implementation of policy for the immediate

future, the Committee seeks to increase slightly the

existing degree of pressure on reserve positions.

Taking account of indications of inflationary

pressures, the strength of the business expansion,

developments in foreign exchange and domestic

financial markets, and the behavior of the monetary

aggregates, somewhat greater reserve restraint would,

or slightly lesser reserve restraint might, be accept

able in the intermeeting period. The contemplated

reserve conditions are expected to be consistent

with growth in M2 and M3 over the period from

June through September at annual rates of about

5-1/2 and 7 percent, respectively. The Chairman

may call for Committee consultation if it appears

to the Manager for Domestic Operations that

reserve conditions during the period before the

next meeting are likely to be associated with a

federal funds rate persistently outside a range of

5 to 9 percent.

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

held on Tuesday, August 16, 1988.

The meeting adjourned.

Secretary