FOMC Minutes

Meeting of the Federal Open Market Committee

November 1, 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, November 1, 1988, at 9:00 a.m.

PRESENT:

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Ms.

Greenspan, Chairman

Corrigan, Vice Chairman

Angell

Black

Forrestal

Heller

Hoskins

Johnson

Kelley

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

Kohn, Secretary and Economist

Bernard, Assistant Secretary

Bradfield, General Counsel

Patrikis, Deputy General Counsel

Prell, Economist

Truman, Economist

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

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

Ms. Zickler, Assistant Director, Division of Research

and Statistics, Board of Governors

Mr. Porter,l Assistant Director, Division of Monetary

Affairs, Board of Governors

Messrs. Hallman l and Small, l Economists, Division of

Monetary Affairs

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, T. Davis, Lang, Ms. Munnell,

Messrs. Rolnick, Rosenblum, and Scheld, Senior Vice

Presidents, Federal Reserve Banks of St. Louis,

Kansas City, Philadelphia, Boston, Minneapolis,

Dallas, and Chicago, respectively

Mr. Judd, Vice President, Federal Reserve Bank of

San Francisco

Ms. Meulendyke, 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 September 20, 1988, were

approved.

By unanimous vote, the Committee amended Section 2(b) of its

"Rules of Organization", to advance from March 1 to January 1 of each year

the start of the annual terms of newly elected members and alternate

members representing Federal Reserve Banks.

This change will take effect

January 1, 1990.

1. Attended portion of the meeting relating to long-run relationship

between money and prices.

By unanimous vote, System open market transactions in foreign

currencies during the period September 20, 1988 through October 31, 1988,

were ratified.

By unanimous vote, System open market transactions in government

securities and federal agency obligations during the period September 20,

1988 through October 31, 1988, were ratified.

By unanimous vote, paragraph 1(a) of the Authorization for

Domestic Open Market Operations was amended to raise from $6 billion to $10

billion the dollar limit on intermeeting changes in System Account holdings

of U.S. government and federal agency securities for the intermeeting

period ending December 14, 1988.

By unanimous vote, the Committee authorized the renewal for

further periods of one year of the System's reciprocal currency ("swap")

arrangements having the amounts and maturity dates indicated below:

Foreign Bank

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

Amount of

arrangement

(millions of

$ equivalent)

$ 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

Term

(months)

12 mos.

"

"

"

"

"

"

"

"

"

"

"

"

"

Maturity

date

12/02/88

12/16/88

12/28/88

12/29/88

12/02/88

12/28/88

12/28/88

12/28/88

12/02/88

12/02/88

12/28/88

12/02/88

12/02/88

12/02/88

600.0

"

12/02/88

1,250.0

"

12/02/88

With 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 indicates

that the expansion in economic activity has moderated

from the vigorous pace earlier in the year. Total

nonfarm payroll employment grew considerably in the

third quarter but the gains were less than those

registered in the first half of the year and employment

in manufacturing declined in August and September. The

civilian unemployment rate fell to 5.4 percent in

September, remaining in the narrow range that has

prevailed since early spring. Industrial production

advanced only slightly on balance in August and

September after a sharp increase in July, while housing

construction has been flat in recent months. Consumer

spending increased substantially on average in the third

quarter but apparently slowed in recent months. Indica

tors of business capital spending suggest considerably

slower expansion in the third quarter, following very

rapid growth in the first half of the year. Preliminary

data for the nominal U.S. merchandise trade deficit in

August showed a greater deficit than in July, but the

average for July-August was slightly less than the

second-quarter rate. The latest information on prices

and wages suggests little if any change from recent

trends.

Interest rates in long-term debt markets have

declined a little further since the Committee meeting on

September 20, while rates in short-term markets have

edged higher. The trade-weighted foreign exchange value

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

declined appreciably over the intermeeting period from

the high level of last summer.

Expansion of M2 has slowed considerably in recent

months; growth of M3 moderated in August and September

but appears to have strengthened somewhat in October.

Thus far this year, M2 has grown at a rate somewhat

below, and M3 at a rate somewhat above, the midpoint of

the ranges established by the Committee for 1988. M1

has increased only slightly on balance in recent months

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.

-5-

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

September through December at annual rates of about

2-1/2 and 6 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.

-6

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

Wednesday, December 14, 1988.

The meeting adjourned.

Secretary