FOMC Minutes

Meeting of the Federal Open Market Committee

December 13-14, 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, December 13, 1988, at 2:30 p.m. and

continuing on Wednesday, December 14, 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, and Melzer, 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. Beebe, Broaddus, J. Davis, R. Davis,

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

1. Attended Wednesday session only.

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

Messrs. Feinman and Rea, 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

Mr. Eisenmenger, First Vice President, Federal Reserve Bank

of Boston

Messrs. Balbach, T. Davis, Lang, Rosenblum,

and Scheld, Senior Vice Presidents, Federal Reserve

Banks of St. Louis, Kansas City, Philadelphia,

Dallas, and Chicago, respectively

Ms. Lovett, Messrs. McNees and Miller, Vice Presidents,

Federal Reserve Banks of New York, Boston, and

Minneapolis, respectively

By unanimous vote, the minutes of actions taken at the meeting of

the Federal Open Market Committee held on November 1, 1988, were approved.

By unanimous vote, System open market transactions in foreign

currencies during the period November 1, 1988, through December 13, 1988,

were ratified.

By unanimous vote, System open market transactions in government

securities and federal agency obligations during the period November 1,

1988, through December 13, 1988, were ratified.

2. Attended portion of Tuesday's meeting relating to review of recent

experience with borrowing and the federal funds rate and the

implementation of open market operations.

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 suggests

that, apart from the direct effects of the drought,

economic activity has continued to expand at a vigorous

pace. Total nonfarm payroll employment rose sharply in

October and November, with sizable increases indicated

in manufacturing after declines in late summer. The

civilian unemployment rate, at 5.4 percent in November,

remained in the lower part of the range that has

prevailed since early spring. Industrial production

advanced considerably in October and November. Housing

starts turned up in October after changing little on

balance over the previous several months. Growth in

consumer spending has been somewhat more moderate in

recent months, and indicators of business capital

spending suggest a substantially slower rate of

expansion than earlier in the year. The nominal U.S.

merchandise trade deficit narrowed further in the third

quarter. Preliminary data for October indicate a small

decline from the revised deficit for September. The

latest information on prices and wages suggest little if

any change from recent trends.

Interest rates have risen since the Committee

meeting on November 1, with appreciable increases

occurring in short-term markets. In foreign exchange

markets, the trade-weighted value of the dollar in terms

of the other G-10 currencies declined significantly

further on balance over the intermeeting period.

Expansion of M2 and M3 strengthened in November

from relatively slow rates of growth in previous months,

especially in the case of M2. Thus far this year, M2

has grown at a rate a little below, and M3 at a rate a

little above, the midpoint of the ranges established by

the Committee for 1988. M1 has increased only slightly

on balance over the past several months, bringing growth

so far this year to 4 percent. Expansion of total

domestic nonfinancial debt for the year thus far appears

to be at a pace somewhat below that in 1987 and around

the midpoint of the Committee's monitoring range for

1988.

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 increase somewhat 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 inter

meeting period. The contemplated reserve conditions are

expected to be consistent with growth of M2 and M3 over

the period from November through March at annual rates

of about 3 and 6-1/2 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 7 to 11 percent.

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

Tuesday-Wednesday, February 7-8, 1989.

The meeting adjourned.

Secretary