FOMC Minutes

Meeting of the Federal Open Market Committee

November 14, 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, November 14, 1989, at 2:30 p.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

Kohn, Secretary and Economist

Bernard, Assistant Secretary

Gillum, Deputy Assistant Secretary

Mattingly, General Counsel

Prell, Economist

Truman, Economist

Messrs. Balbach, 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

-2

Mr. Coyne, Assistant to the Board, Board of Governors

Mr. Keleher, Assistant to Governor Johnson, Office of

Board Members, Board of Governors

Ms. Low, Open Market Secretariat Assistant, Division of

Monetary Affairs, Board of Governors

Messrs. Broaddus, J. Davis, Rolnick, and Ms. Tschinkel,

Senior Vice Presidents, Federal Reserve Banks of

Richmond, Cleveland, Minneapolis, and Atlanta,

respectively

Messrs. Judd, Meyer, and O'Driscoll, Vice Presidents,

Federal Reserve Banks of San Francisco, Philadelphia,

and Dallas, respectively

Ms. Krieger, Manager, Open Market Operations, Federal

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 October 3, 1989, 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 April 28, 1989, was accepted.

By unanimous vote, System open market transactions in foreign

currencies during the period October 3, 1989, through November 13, 1989,

were ratified.

By unanimous vote, System open market transactions in government

securities and federal agency obligations during the period October 3,

1989, through November 13, 1989, were ratified.

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

Domestic Open Market Operations was amended to raise from $6 billion to $8

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 19, 1989.

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:

-3-

Term

(months)

12 mos.

"" "

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

"

Maturity

date

12/04/89

12/18/89

12/27/89

12/28/89

12/04/89

12/27/89

12/27/89

12/27/89

12/04/89

12/04/89

12/27/89

12/04/89

12/04/89

12/04/89

600.0

12/04/89

1,250.0

12/04/89

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

continuing expansion in economic activity, though at a

somewhat slower pace than earlier in the year. Total

nonfarm payroll employment increased appreciably in

October, but on balance its growth has been more

moderate over the past several months, especially in

the private sector. The civilian unemployment rate

has remained around 5-1/4 percent. Strike activity

and other disruptions depressed industrial production

noticeably in October. Retail sales fell appreciably

in October, reflecting a sharp drop in purchases of

motor vehicles, but some upward revisions were made

for August and September. Housing starts fell further

in September and for the third quarter as a whole were

about unchanged from their reduced second-quarter

average. Indicators of business capital spending

suggest slower growth after a substantial increase in

the first half of the year. The nominal U.S. mer

chandise trade deficit widened in August from its July

rate as non-oil imports increased markedly. Consumer

prices have risen more slowly on balance since

midyear, partly reflecting sharp reductions in energy

prices, but the latest data on labor compensation

suggest no significant change in prevailing trends.

Most interest rates have declined appreciably

since the Committee meeting on October 3. In foreign

exchange markets, the trade-weighted value of the

dollar in terms of the other G-10 currencies declined

slightly on balance over the intermeeting period.

M2 continued to grow fairly briskly in October,

largely reflecting strength in its M1 and other liquid

components; thus far this year M2 has expanded at a

pace somewhat below the midpoint of the Committee's

annual range. Growth of M3 picked up in October but

has remained much more restrained than that of M2, as

assets of thrift institutions and their associated

funding needs apparently continued to contract; 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.

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 7-1/2 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 Monday-Tuesday, December 18-19, 1989.

The meeting adjourned.

Secretary