FOMC Minutes

Meeting of the Federal Open Market Committee

October 3, 1989

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, October 3, 1989, at 9:00 a.m.

PRESENT:

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Ms.

Mr.

Greenspan, Chairman

Corrigan, Vice Chairman

Angell

Guffey

Johnson

Keehn

Kelley

LaWare

Melzer

Seger

Syron

Messrs. Boehne, Boykin, Hoskins, and Stern, Alternate

Members of the Federal Open Market Committee

Messrs. Black, Forrestal and Parry, Presidents of the

Federal Reserve Banks of Richmond, Atlanta, and

San Francisco, respectively

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Kohn, Secretary and Economist

Bernard, Assistant Secretary

Gillum, Deputy Assistant Secretary

Mattingly, General Counsel

Patrikis, Deputy General Counsel

Prell, Economist

Truman, Economist

Messrs. R. Davis, T. Davis, Lindsey, Ms. Munnell,

Messrs. Promisel, Scheld, Siegman, Simpson,

and Slifman, 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. Keleher, Assistant to Governor Johnson, Office of

Board Members, Board of Governors

Mr. Stockton, Associate Director, Division of

Research and Statistics, Board of Governors

Ms. Low, Open Market Secretariat Assistant, Division of

Monetary Affairs, Board of Governors

Messrs. Beebe, Broaddus, J. Davis, Lang, Rolnick,

Rosenblum, and Ms. Tschinkel, Senior Vice Presidents,

Federal Reserve Banks of San Francisco, Richmond,

Cleveland, Philadelphia, Minneapolis, Dallas, and

Atlanta, respectively

Messrs. Guentner and Thornton, Assistant Vice Presidents,

Federal Reserve Banks of New York and St. Louis,

respectively

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

the Federal Open Market Committee held on August 22, 1989, were approved.

By unanimous vote, System open market transactions in foreign

currencies during the period August 22, 1989, through October 2, 1989,

were ratified.

By unanimous vote, System open market transactions in government

securities and federal agency obligations during the period August 22,

1989, through October 2, 1989, were ratified.

With Mr. Guffey and 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 economic activity continued to expand at a

moderate pace in the third quarter. In July and

August, total nonfarm payroll employment rose

appreciably despite the depressing effect of strike

activity. The civilian unemployment rate remained

around 5-1/4 percent. Industrial production picked up

in August, mainly because of a rebound in auto

assemblies and coal mining. Consumer spending has

registered larger gains in recent months, reflecting

in part a surge in auto sales. Housing starts in July

1. Entered meeting prior to discussion of current monetary policy.

2. Left meeting prior to discussion of current monetary policy.

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and August were slightly above their second-quarter

average. Indicators of business capital spending

suggest somewhat slower growth in the third quarter

after the substantial increase in the first half of

the year. The nominal U.S. merchandise trade deficit

recorded a further decline in July relative to June

and to the average for the second quarter as a whole.

Sharp reductions in energy prices over the summer

months damped increases in consumer prices and

contributed to declines in producer prices. The

latest wage data suggest no change in prevailing

trends.

Interest rates generally show small mixed changes

on balance since the Committee meeting on August 22.

In foreign exchange markets, the trade-weighted value

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

fell after the release of the G-7 statement on

September 23; on balance, the dollar depreciated

somewhat over the intermeeting period.

M2 grew fairly briskly in August and evidently

also in September, lifting its expansion thus far this

year to somewhat above the lower end of the

Committee's annual range. M3 grew at a substantially

reduced pace in this period, as assets of thrift

institutions and their associated funding needs

apparently contracted further; for the year to date,

M3 has grown at a rate around the lower bound of the

Committee's annual range.

The Federal Open Market Committee seeks monetary

and financial conditions that will foster price

stability, promote growth in output on a sustainable

basis, and contribute to an improved pattern of inter

national transactions. In furtherance of these

objectives, the Committee at its meeting in July

reaffirmed the ranges it had established in February

for growth of M2 and M3 of 3 to 7 percent and 3-1/2 to

7-1/2 percent, respectively, measured from the fourth

quarter of 1988 to the fourth quarter of 1989. The

monitoring range for growth of total domestic non

financial debt also was maintained at 6-1/2 to 10-1/2

percent for the year. For 1990, on a tentative basis,

the Committee agreed in July to use the same ranges as

in 1989 for growth in each of the monetary aggregates

and debt, measured from the fourth quarter of 1989 to

the fourth quarter of 1990. The behavior of the

monetary aggregates will continue to be evaluated in

the light of movements in their velocities, develop

ments in the economy and financial markets, and

progress toward price level stability.

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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 progress toward price stability, the

strength of the business expansion, the behavior of

the monetary aggregates, and developments in foreign

exchange and domestic financial markets, slightly

greater reserve restraint might or slightly lesser

reserve restraint would 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 September through December at

annual rates of about 6-1/2 and 4-1/2 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.

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

held on Tuesday, November 14, 1989.

The meeting adjourned.

Secretary