FOMC Minutes

Meeting of the Federal Open Market Committee

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, August 16, 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

LaWare

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.

Mr.

Mr.

Mr.

Mr.

Mr.

Kohn, Secretary and Economist

Bernard, Assistant Secretary

Bradfield, General Counsel

Patrikis, Deputy General Counsel

Prell, Economist

Truman, Economist

Messrs. Beebe, J. Davis, R. Davis, Lindsey,

Siegman, Simpson, and Ms. Tschinkel,

Associate Economists

Mr. Cross, Manager for Foreign Operations, System

Open Market Account

1. Entered the meeting following action to approve minutes for the

June 29-30, 1988, meeting.

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

Ms. Zickler, Assistant Director, Division of Research

and Statistics, 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

Mr. Whitesell, Economist, Division of Monetary Affairs,

Board of Governors

Ms. Low, Open Market Secretariat Assistant, Division of

Monetary Affairs, Board of Governors

Messrs. Balbach, T. Davis, Lang, and Scheld, Senior

Vice Presidents, Federal Reserve Banks of

St. Louis, Kansas City, Philadelphia, and

Chicago, respectively

Ms. Lovett, Messrs. McNees, Miller, and O'Driscoll,

Vice Presidents, Federal Reserve Banks of

New York, Boston, Minneapolis, and Dallas,

respectively

Mr. Guentner, Manager, Open Market Operations,

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 June 29-30, 1988, were approved.

By unanimous vote, System open market transactions in foreign

currencies during the period June 29, 1988, through August 15, 1988, were

ratified.

By unanimous vote, System open market transactions in government

securities and federal agency obligations during the period June 29, 1988,

through August 15, 1988, were ratified.

With Mr. Hoskins dissenting and Mr. Kelley absent, 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 economic activity has continued to expand at a

vigorous pace. Total nonfarm payroll employment grew

sharply further in June and July. The civilian un

employment rate in July, at 5.4 percent, was slightly

below its average level in the second quarter.

Industrial production advanced considerably further in

July. Growth in retail sales remained moderate last

month. Business capital spending has continued to grow

rapidly. Some measures of prices indicate a pickup from

recent trends and labor costs have risen more rapidly

in recent months.

Most interest rates have increased appreciably

since the Committee's meeting on June 29-30. On August

9 the Federal Reserve Board approved an increase in the

discount rate from 6 to 6-1/2 percent.

The nominal U.S. merchandise trade deficit fell in

the second quarter as exports continued to rise and non

oil imports declined. Over the intermeeting period, the

trade-weighted foreign exchange value of the dollar

appreciated somewhat further in terms of the other G-10

currencies.

Expansion of M2 and to a lesser extent M3 slowed in

July but growth of M1 remained relatively strong. From

a fourth-quarter base through July, M2 and M3 have grown

at rates somewhat above the midpoints 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 at its meeting in late June

reaffirmed 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.

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 nonfinancial 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 maintain the existing

degree of pressure on reserve positions. Taking account

of indications of inflationary pressures, the strength

of the business expansion, the behavior of the monetary

aggregates, and developments in foreign exchange and

domestic financial markets, somewhat greater reserve

restraint would, or slightly lesser reserve restraint

might, be acceptable 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 3-1/2

and 5-1/2 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 6 to 10 percent.

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

Tuesday, September 20, 1988.

The meeting adjourned.

Secretary