FOMC Minutes

Meeting of the Federal Open Market Committee

September 20, 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 Tuesday, September 20, 1988, at 9:00 a.m.

PRESENT:

Mr. Greenspan, Chairman

Mr. Corrigan, Vice Chairman

Mr. Angell

Mr. Black

Mr. Forrestal

Mr. Heller

Mr. Hoskins

Mr. Johnson

Mr. Kelley

Mr. LaWare

Mr. Parry

Ms. 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. Prell, Economist

Mr. Truman, Economist

Messrs. Beebe, Broaddus, Lindsey,

Siegman, Simpson, 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

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. Stockton, 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. Gillum, Economist, Open Market Secretariat, Division

of Monetary Affairs, Board of Governors

Ms. Low, Open Market Secretariat Assistant, Division of

Monetary Affairs, Board of Governors

Messrs. Balbach, Davis, Ms. Munnell, Messrs. Rolnick,

Rosenblum, and Scheld, Senior Vice Presidents,

Federal Reserve Banks of St. Louis, Kansas City,

Boston, Minneapolis, Dallas, and Chicago,

respectively

Messrs. Akhtar, Meyer, and Sniderman, Vice Presidents,

Federal Reserve Banks of New York, Philadelphia,

and Cleveland, respectively

Mr. Vangel, 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 August 16, 1988, were approved.

The report of examination of the System Open Market Account, made

by the Board's Division of Federal Reserve Bank Operations as of the close

of business on February 22, 1988, was accepted.

By unanimous vote, System open market transactions in foreign

currencies during the period August 16, 1988, through September 19, 1988

were ratified.

By unanimous vote, System open market transactions in government

securities and federal agency obligations during the period August 16,

1988, through September 19, 1988, were ratified.

By unanimous vote, 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 may be

moderating from the vigorous pace earlier in the year.

Total nonfarm payroll employment grew more slowly in

July and August, though the increases in the two months

were still sizable. The civilian unemployment rate rose

to 5.6 percent in August. Industrial production

advanced slightly further in August after a sharp

increase in July. Retail sales were flat in July and

August. Recent indicators of business capital spending

suggest some moderation from the especially rapid growth

in earlier months of the year. Preliminary data for the

nominal U.S. merchandise trade deficit in July showed

some further reduction from the improved second-quarter

rate. The latest information on prices suggests little

if any change from recent trends.

Most interest rates have declined somewhat since

the Committee meeting on August 16. Over the inter

meeting period, the trade-weighted foreign exchange

value of the dollar in terms of the other G-10

currencies was about unchanged on balance.

Expansion of M2 and M3 moderated further in August.

For the year through August, M2 has grown at a rate

slightly above, and M3 at a rate more noticeably above,

the midpoints of the ranges established by the Committee

for 1988. M1 was unchanged in August after registering

relatively strong growth in June and July. Expansion

of 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 of 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 of 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 of M2 and M3 over the period from

August through December at annual rates of about 3 and 5

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, November 1, 1988.

The meeting adjourned.

Secretary