FOMC Minutes

Meeting of the Federal Open Market Committee

February 6-7, 1990

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, February 6, 1990, at 2:30 p.m. and was

continued on Wednesday, February 7, 1990, at 9:00 a.m.

PRESENT:

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Ms.

Mr.

Greenspan, Chairman

Corrigan, Vice Chairman

Angell

Boehne

Boykin

Hoskins

Johnson

Kelley

LaWare

Seger

Stern

Messrs. Black, Forrestal, Keehn, and Parry, Alternate

Members of the Federal Open Market Committee

Messrs. Guffey, Melzer, and Syron, Presidents of the

Federal Reserve Banks of Kansas City, St. Louis,

and Boston, 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. J. Davis, R. Davis, Lang, Lindsey, Promisel,

Rolnick, Rosenblum, Siegman, Simpson, and

Stockton, 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. Keleher, Assistant to Governor Johnson, Office of

Board Members, Board of Governors

Mr. Ettin, Deputy Director, Division of Research and

Statistics, Board of Governors

Mr. Slifman, Associate Director, Division of Research

and Statistics, Board of Governors

Messrs. Reinhart and Wilcox, Economists, Divisions of

Monetary Affairs and Research and Statistics,

respectively, Board of Governors

Ms. Low, Open Market Secretariat Assistant, Division of

Monetary Affairs, Board of Governors

Messrs. Balbach, Beebe, Broaddus, T. Davis, Scheld, and

Ms. Tschinkel, Senior Vice Presidents, Federal Reserve

Banks of St. Louis, San Francisco, Richmond,

Kansas City, Chicago, and Atlanta, respectively

Mr. McNees, Vice President, Federal Reserve Bank

of Boston

Ms. Meulendyke, Manager, Open Market Operations,

Federal Reserve Bank of New York

In the agenda for this meeting, it was reported that advices of

the election of the following members and alternate members of the Federal

Open Market Committee for the period commencing January 1, 1990, and ending

December 31, 1990, had been received and the named individuals had executed

their oaths of office.

The elected members and alternate members were as follows:

E. Gerald Corrigan, President of the Federal Reserve Bank of New York, with

James H. Oltman, First Vice President of the Federal Reserve Bank of

New York, as alternate;

Edward G. Boehne, President of the Federal Reserve Bank of Philadelphia,

with Robert P. Black, President of the Federal Reserve Bank of

Richmond, as alternate;

W. Lee Hoskins, President of the Federal Reserve Bank of Cleveland, with

Silas Keehn, President of the Federal Reserve Bank of Chicago,

as alternate;

Robert H. Boykin, President of the Federal Reserve Bank of Dallas, with

Robert P. Forrestal, President of the Federal Reserve Bank of Atlanta,

as alternate;

2.

Attended portion of meeting relating to the Committee's discussion

of the economic outlook and its longer-run objectives for monetary

and debt aggregates.

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Gary H. Stern, President of the Federal Reserve Bank of Minneapolis, with

Robert T. Parry, President of the Federal Reserve Bank of San

Francisco, as alternate.

By unanimous vote, the following officers of the Federal Open

Market Committee were elected to serve until the election of their

successors at the first meeting of the Committee after December 31, 1990,

with the understanding that in the event of the discontinuance of their

official connection with the Board of Governors or with a Federal Reserve

Bank, they would cease to have any official connection with the Federal

Open Market Committee:

Alan Greenspan

E. Gerald Corrigan

Chairman

Vice Chairman

Donald L. Kohn

Normand R. V. Bernard

Gary P. Gillum

J. Virgil Mattingly, Jr.

Ernest T. Patrikis

Michael J. Prell

Edwin M. Truman

Secretary and Economist

Assistant Secretary

Deputy Assistant Secretary

General Counsel

Deputy General Counsel

Economist

Economist

John M. Davis, Richard G. Davis,

Richard W. Lang, David E. Lindsey,

Larry J. Promisel, Arthur J. Rolnick,

Harvey Rosenblum, Charles J. Siegman,

Thomas D. Simpson, and David J. Stockton,

Associate Economists

By unanimous vote, the Federal Reserve Bank of New York was

selected to execute transactions for the System Open Market Account until

the adjournment of the first meeting of the Committee after December 31,

1990.

By unanimous vote, Peter D. Sternlight and Sam Y. Cross were

selected to serve at the pleasure of the Committee in the capacities of

Manager for Domestic Operations, System Open Market Account, and Manager

for Foreign Operations, System Open Market Account, respectively, on the

understanding that their selection was subject to their being satisfactory

to the Federal Reserve Bank of New York.

Secretary's note: Advice was subsequently received

that the selections indicated above were satisfactory

to the board of directors of the Federal Reserve Bank

of New York.

Secretary's note: On January 18, 1990, the continuing

rules, regulations, authorizations, and other instruments

of the Committee listed below had been distributed with

the advice that, in accordance with procedures approved

by the Committee, they were being called to the

Committee's attention before the February 6-7 organiza

tion meeting to give members an opportunity to raise any

questions they might have concerning them. Members were

asked to indicate if they wished to have any of the

instruments in question placed on the agenda for con

sideration at this meeting. The only requests related to

those under item 3 below, "Resolution of FOMC to provide

for the continued operation of the Committee during an

emergency" and "Resolution of FOMC authorizing certain

actions by Federal Reserve Banks during an emergency".

Accordingly, all of the other instruments (items 1, 2,

and 4 through 9 below) remained in effect in their

existing forms.

1. Procedures for allocation of securities in the System

Open Market Account.

2. Authority for the Chairman to appoint a Federal

Reserve Bank as agent to operate the System Account

in case the New York Bank is unable to function.

3.

Resolution of FOMC to provide for the continued

operation of the Committee during an emergency;

Resolution of FOMC authorizing certain actions by

Federal Reserve Banks during an emergency.

4. Resolution relating to examinations of the System

Open Market Account.

5. Guidelines for the conduct of System operations in

Federal agency issues.

6. Regulation relating to Open Market Operations of

Federal Reserve Banks.

7. Rules of Organization, Rules Regarding Availability

of Information, and Rules of Procedure.

8. Memorandum on Agreement with the U.S. Treasury to

Warehouse Foreign Currencies.

9. Program for Security of FOMC Information.

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 limit on intermeeting changes in System account holdings

of U.S. government and federal agency securities.

With this amendment,

the authorization reads as follows:

AUTHORIZATION FOR DOMESTIC OPEN MARKET OPERATIONS

Amended February 6, 1990

1. The Federal Open Market Committee authorizes and directs the Federal

Reserve Bank of New York, to the extent necessary to carry out the most

recent domestic policy directive adopted at a meeting of the Committee:

(a) To buy or sell U. S. Government securities, including securities

of the Federal Financing Bank, and securities that are direct obliga

tions of, or fully guaranteed as to principal and interest by, any

agency of the United States in the open market, from or to securities

dealers and foreign and international accounts maintained at the Federal

Reserve Bank of New York, on a cash, regular, or deferred delivery

basis, for the System Open Market Account at market prices, and, for

such Account, to exchange maturing U. S. Government and Federal agency

securities with the Treasury or the individual agencies or to allow them

to mature without replacement; provided that the aggregate amount of

U. S. Government and Federal agency securities held in such Account

(including forward commitments) at the close of business on the day of a

meeting of the Committee at which action is taken with respect to a

domestic policy directive shall not be increased or decreased by more

than $8.0 billion during the period commencing with the opening of

business on the day following such meeting and ending with the close of

business on the day of the next such meeting;

(b) When appropriate, to buy or sell in the open market, from or to

acceptance dealers and foreign accounts maintained at the Federal

Reserve Bank of New York, on a cash, regular, or deferred delivery

basis, for the account of the Federal Reserve Bank of New York at market

discount rates, prime bankers acceptances with maturities of up to nine

months at the time of acceptance that (1) arise out of the current

shipment of goods between countries or within the United States, or (2)

arise out of the storage within the United States of goods under

contract of sale or expected to move into the channels of trade within a

reasonable time and that are secured throughout their life by a

warehouse receipt or similar document conveying title to the underlying

goods; provided that the aggregate amount of bankers acceptances held at

any one time shall not exceed $100 million;

(c) To buy U. S. Government securities, obligations that are direct

obligations of, or fully guaranteed as to principal and.interest by, any

agency of the United States, and prime bankers acceptances of the types

authorized for purchase under 1(b) above, from dealers for the account

of the Federal Reserve Bank of New York under agreements for repurchase

of such securities, obligations, or acceptances in 15 calendar days or

less, at rates that, unless otherwise expressly authorized by the

Committee, shall be determined by competitive bidding, after applying

reasonable limitations on the volume of agreements with individual

dealers; provided that in the event Government securities or agency

issues covered by any such agreement are not repurchased by the dealer

pursuant to the agreement or a renewal thereof, they shall be sold in

the market or transferred to the System Open Market Account; and

provided further that in the event bankers acceptances covered by any

such agreement are not repurchased by the seller, they shall continue to

be held by the Federal Reserve Bank or shall be sold in the open market.

2. In order to ensure the effective conduct of open market operations,

the Federal Open Market Committee authorizes and directs the Federal

Reserve Banks to lend U. S. Government securities held in the System

Open Market Account to Government securities dealers and to banks

participating in Government securities clearing arrangements conducted

through a Federal Reserve Bank, under such instructions as the Committee

may specify from time to time.

3. In order to ensure the effective conduct of open market operations,

while assisting in the provision of short-term investments for foreign

and international accounts maintained at the Federal Reserve Bank of New

York, the Federal Open Market Committee authorizes and directs the

Federal Reserve Bank of New York (a) for System Open Market Account, to

sell U. S. Government securities to such foreign and international

accounts on the bases set forth in paragraph 1(a) under agreements

providing for the resale by such accounts of those securities within 15

calendar days on terms comparable to those available on such trans

actions in the market; and (b) for New York Bank account, when

appropriate, to undertake with dealers, subject to the conditions

imposed on purchases and sales of securities in paragraph 1(c),

repurchase agreements in U. S. Government and agency securities, and to

arrange corresponding sale and repurchase agreements between its own

account and foreign and international accounts maintained at the Bank.

Transactions undertaken with such accounts under the provisions of this

paragraph may provide for a service fee when appropriate.

By unanimous vote, the Authorization for Foreign Currency

Operations shown below was reaffirmed:

AUTHORIZATION FOR FOREIGN CURRENCY OPERATIONS

Reaffirmed February 6, 1990

1. The Federal Open Market Committee authorizes and directs the

Federal Reserve Bank of New York, for System Open Market Account, to the

extent necessary to carry out the Committee's foreign currency directive

and express authorizations by the Committee pursuant thereto, and in

conformity with such procedural instructions as the Committee may issue

from time to time:

A. To purchase and sell the following foreign currencies in the form

of cable transfers through spot or forward transactions on the open

market at home and abroad, including transactions with the U. S.

Treasury, with the U. S. Exchange Stabilization Fund established by

Section 10 of the Gold Reserve Act of 1934, with foreign monetary

authorities, with the Bank for International Settlements, and with other

international financial institutions:

Austrian schillings

Belgian francs

Canadian dollars

Danish kroner

Pounds sterling

French francs

German marks

Italian lire

Japanese yen

Mexican pesos

Netherlands guilders

Norwegian kroner

Swedish kronor

Swiss francs

B. To hold balances of, and to have outstanding forward contracts to

receive or to deliver, the foreign currencies listed in paragraph A

above.

C. To draw foreign currencies and to permit foreign banks to draw

dollars under the reciprocal currency arrangements listed in paragraph 2

below, provided that drawings by either party to any such arrangement

shall be fully liquidated within 12 months after any amount outstanding

at that time was first drawn, unless the Committee, because of

exceptional circumstances, specifically authorizes a delay.

D. To maintain an overall open position in all foreign currencies not

exceeding $21.0 billion. For this purpose, the overall open position

in all foreign currencies is defined as the sum (disregarding signs) of

net positions in individual currencies. The net position in a single

foreign currency is defined as holdings of balances in that currency,

plus outstanding contracts for future receipt, minus outstanding

contracts for future delivery of that currency, i.e., as the sum of

these elements with due regard to sign.

2. The Federal Open Market Committee directs the Federal Reserve Bank

of New York to maintain reciprocal currency arrangements ("swap"

arrangements) for the System Open Market Account for periods up to a

maximum of 12 months with the following foreign banks, which are among

those designated by the Board of Governors of the Federal Reserve System

under Section 214.5 of Regulation N, Relations with Foreign Banks and

Bankers, and with the approval of the Committee to renew such

arrangements on maturity:

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Foreign bank

Amount of arrangement

(millions of dollars

equivalent)

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

Regular

Special

Netherlands Bank

Bank of Norway

Bank of Sweden

Swiss National Bank

Bank for International Settlements:

Dollars against Swiss francs

Dollars against authorized European

currencies other than Swiss francs

*

250

1,000

2,000

250

3,000

2,000

6,000

3,000

5,000

700

125 *

500

250

300

4,000

600

1,250

Facility with maturity date of February 15, 1990.

Any changes in the terms of existing swap arrangements, and the proposed

terms of any new arrangements that may be authorized, shall be referred

for review and approval to the Committee.

3. All transactions in foreign currencies undertaken under paragraph

1.A above shall, unless otherwise expressly authorized by the Committee,

be at prevailing market rates. For the purpose of providing an invest

ment return on System holdings of foreign currencies, or for the purpose

of adjusting interest rates paid or received in connection with swap

drawings, transactions with foreign central banks may be undertaken at

non-market exchange rates.

4. It shall be the normal practice to arrange with foreign central

banks for the coordination of foreign currency transactions. In making

operating arrangements with foreign central banks on System holdings of

foreign currencies, the Federal Reserve Bank of New York shall not

commit itself to maintain any specific balance, unless authorized by the

Federal Open Market Committee. Any agreements or understandings

concerning the administration of the accounts maintained by the Federal

Reserve Bank of New York with the foreign banks designated by the Board

of Governors under Section 214.5 of Regulation N shall be referred for

review and approval to the Committee.

5. Foreign currency holdings shall be invested insofar as practicable,

considering needs for minimum working balances. Such investments shall

be in liquid form, and generally have no more than 12 months remaining

to maturity. When appropriate in connection with arrangements to

provide investment facilities for foreign currency holdings, U. S.

Government securities may be purchased from foreign central banks under

agreements for repurchase of such securities within 30 calendar days.

6. All operations undertaken pursuant to the preceding paragraphs

shall be reported promptly to the Foreign Currency Subcommittee and the

Committee. The Foreign Currency Subcommittee consists of the Chairman

and Vice Chairman of the Committee, the Vice Chairman of the Board of

Governors, and such other member of the Board as the Chairman may

designate (or in the absence of members of the Board serving on the

Subcommittee, other Board Members designated by the Chairman as

alternates, and in the absence of the Vice Chairman of the Committee,

his alternate). Meetings of the Subcommittee shall be called at the

request of any member, or at the request of the Manager for Foreign

Operations, for the purposes of reviewing recent or contemplated

operations and of consulting with the Manager on other matters relating

to his responsibilities. At the request of any member of the

Subcommittee, questions arising from such reviews and consultations

shall be referred for determination to the Federal Open Market

Committee.

7. The Chairman is authorized:

A. With the approval of the Committee, to enter into any needed

agreement or understanding with the Secretary of the Treasury about the

division of responsibility for foreign currency operations between the

System and the Treasury;

B. To keep the Secretary of the Treasury fully advised concerning

System foreign currency operations, and to consult with the Secretary on

policy matters relating to foreign currency operations;

C. From time to time, to transmit appropriate reports and

information to the National Advisory Council on International Monetary

and Financial Policies.

8. Staff officers of the Committee are authorized to transmit

pertinent information on System foreign currency operations to

appropriate officials of the Treasury Department.

9. All Federal Reserve Banks shall participate in the foreign currency

operations for System Account in accordance with paragraph 3.G(1) of the

Board of Governors' Statement of Procedure with Respect to Foreign

Relationships of Federal Reserve Banks, dated January 1, 1944.

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By unanimous vote, the Foreign Currency Directive shown below

was reaffirmed:

FOREIGN CURRENCY DIRECTIVE

Reaffirmed February 6, 1990

1. System operations in foreign currencies shall generally be directed

at countering disorderly market conditions, provided that market

exchange rates for the U. S. dollar reflect actions and behavior

consistent with the IMF Article IV, Section 1.

2. To achieve this end the System shall:

A. Undertake spot and forward purchases and sales of foreign

exchange.

B. Maintain reciprocal currency ("swap") arrangements with selected

foreign central banks and with the Bank for International Settlements.

C. Cooperate in other respects with central banks of other

countries and with international monetary institutions.

3. Transactions may also be undertaken:

A. To adjust System balances in light of probable future needs for

currencies.

B. To provide means for meeting System and Treasury commitments in

particular currencies, and to facilitate operations of the Exchange

Stabilization Fund.

C. For such other purposes as may be expressly authorized by the

Committee.

4. System foreign currency operations shall be conducted:

A. In close and continuous consultation and cooperation with the

United States Treasury;

B. In cooperation, as appropriate, with foreign monetary

authorities; and

C. In a manner consistent with the obligations of the United States

in the International Monetary Fund regarding exchange arrangements under

the IMF Article IV.

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By unanimous vote, the Procedural Instructions with respect to

Foreign Currency Operations shown below were reaffirmed:

PROCEDURAL INSTRUCTIONS WITH RESPECT TO

FOREIGN CURRENCY OPERATIONS

Reaffirmed February 6, 1990

In conducting operations pursuant to the authorization and

direction of the Federal Open Market Committee as set forth in the

Authorization for Foreign Currency Operations and the Foreign Currency

Directive, the Federal Reserve Bank of New York, through the Manager for

Foreign Operations, System Open Market Account, shall be guided by the

following procedural understandings with respect to consultations and

clearance with the Committee, the Foreign Currency Subcommittee, and the

Chairman of the Committee. All operations undertaken pursuant to such

clearances shall be reported promptly to the Committee.

1. The Manager for Foreign Operations shall clear with the

Subcommittee (or with the Chairman, if the Chairman believes that

consultation with the Subcommittee is not feasible in the time

available):

A. Any operation that would result in a change in the System's

overall open position in foreign currencies exceeding $300 million on

any day or $600 million since the most recent regular meeting of the

Committee.

B. Any operation that would result in.a change on any day in the

System's net position in a single foreign currency exceeding $150

million, or $300 million when the operation is associated with repayment

of swap drawings.

C. Any operation that might generate a substantial volume of

trading in a particular currency by the System, even though the change

in the System's net position in that currency might be less than the

limits specified in 1.B.

D. Any swap drawing proposed by a foreign bank not exceeding the

larger of (i) $200 million or (ii) 15 percent of the size of the swap

arrangement.

2. The Manager for Foreign Operations shall clear with the Committee

(or with the Subcommittee, if the Subcommittee believes that

consultation with the full Committee is not feasible in the time

available, or with the Chairman, if the Chairman believes that

consultation with the Subcommittee is not feasible in the time

available):

A. Any operation that would result in a change in the System's

overall open position in foreign currencies exceeding $1.5 billion since

the most recent regular meeting of the Committee.

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B. Any swap drawing proposed by a foreign bank exceeding the larger

of (i) $200 million or (ii) 15 percent of the size of the swap

arrangement.

3. The.Manager for Foreign Operations shall also consult with the Sub

committee or the Chairman about proposed swap drawings by the System,

and about any operations that are not of a routine character.

By unanimous vote, the Resolution of Federal Open Market

Committee to provide for the continued operation of the Committee during

an emergency and the Resolution of the Federal Open Market Committee

authorizing certain actions by Federal Reserve Banks during an emergency

were amended to read as follows:

RESOLUTION OF FEDERAL OPEN MARKET COMMITTEE

TO PROVIDE FOR THE CONTINUED OPERATION OF

THE COMMITTEE DURING AN EMERGENCY

Amended February 6, 1990

In the event of a national security emergency, if the Secretary

or Assistant Secretary of the Federal Open Market Committee (or in the

event of the unavailability of both of them, the Secretary or Acting

Secretary of the Board of Governors of the Federal Reserve System)

certifies that as a result of the emergency the available number of

regular members and regular alternates of the Federal Open Market

Committee is less than seven, all powers and functions of the said

Committee shall be performed and exercised by, and authority to exercise

such powers and functions is hereby delegated to, an Interim Committee,

subject to the following terms and conditions:

Such Interim Committee shall consist of: seven members,

comprising each regular member and regular alternate of the Federal Open

Market Committee then available, together with an additional number,

sufficient to make a total of seven, which shall be made up in the

following order or priority from those available: (1) each alternate at

large (as defined below); (2) each President of a Federal Reserve Bank

not then either a regular member or an alternate; (3) each First Vice

President of a Federal Reserve Bank; provided that (a) within each of

the groups referred to in clauses (1), (2), and (3) priority of

selection shall be in numerical order according to the numbers of the

Federal Reserve Districts, (b) the President and the First Vice

President of the same Federal Reserve Bank shall not serve at the same

time as members of the Interim Committee, and (c) whenever a regular

member or regular alternate of the Federal Open Market Committee or a

person having a higher priority as indicated in clauses (1), (2), and

(3) becomes available he shall become a member of the Interim Committee

in the place of the person then on the Interim Committee having the

lowest priority. The Interim Committee is hereby authorized to take

action by majority vote of those present whenever one or more members

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thereof are present, provided that an affirmative vote for the action

taken is cast by at least one regular member, regular alternate, or

President of a Federal Reserve Bank. The delegation of authority and

other procedures set forth above shall be effective only during such

period or periods as there are available less than a total of seven

regular members and regular alternates of the Federal Open Market

Committee.

As used herein the term "regular member" refers to a member of

the Federal Open Market Committee duly appointed or elected in

accordance with existing law; the term "regular alternate" refers to an

alternate of the Committee duly elected in accordance with existing law

and serving in the absence of the regular member for whom he was

elected; and the term "alternate at large" refers to any other duly

elected alternate of the Committee at a time when the member in whose

absence he was elected to serve is available.

RESOLUTION OF FEDERAL OPEN MARKET COMMITTEE AUTHORIZING

CERTAIN ACTIONS BY FEDERAL RESERVE BANKS DURING AN EMERGENCY

Amended February 6, 1990

The Federal Open Market Committee hereby authorizes each

Federal Reserve Bank to take any or all of the actions set forth below

during and following a national security emergency when such Federal

Reserve Bank finds itself unable after reasonable efforts to be in

communication with the Federal Open Market Committee (or with the

Interim Committee acting in lieu of the Federal Open Market Committee)

or when the Federal Open Market Committee (or such Interim Committee) is

unable to function. Action(s) under this authorization will be taken by

a Federal Reserve Bank only after reasonable efforts have been made to

consult with the Chairman of the Committee or if the latter is not

available with the Vice Chairman of the Committee or if both the

Chairman and the Vice Chairman are not available, with whatever member

of the Board of Governors may be available to serve as Acting Chairman

as provided for by the Committee's Rules of Organization. In addition,

to the extent feasible, the action(s) should be coordinated with other

Reserve Banks with which the Reserve Bank is able to communicate.

(1) Whenever it deems it necessary in the light of economic

conditions and the general credit situation then prevailing (after

taking into account the possibility of providing necessary credit

through advances secured by direct obligations of the United States

under the last paragraph of section 13 of the Federal Reserve Act), such

Federal Reserve Bank may purchase and sell obligations of the United

States for its own account, either outright or under repurchase

agreement, from and to banks, dealers or other holders of such

obligations.

(2) Such Federal Reserve Bank may engage in operations of the types

specified in the Committee's authorization for System foreign currency

operations when requested to do so by an authorized official of the U.S.

Treasury Department; provided, however, that such Bank shall take all

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steps practicable at the time to insure as far as possible that, in

light of the information available on other System foreign currency

operations, its own operations do not result in the aggregate in

breaching any of the several dollar limits specified in the

authorization.

Authority to take the actions set forth shall be effective

only until such time as the Federal Reserve Bank is able again to

establish communications with the Federal Open Market Committee (or the

Interim Committee), and such Committee is then functioning.

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

of the Federal Open Market Committee held on December 18-19, 1989, were

approved.

By unanimous vote, System open market transactions in foreign

currencies during the period December 19, 1989, through February 6,

1990, were ratified.

By unanimous vote, System open market transactions in

government securities and federal agency obligations during the period

December 19, 1989, through February 6, 1990, were ratified.

With Ms. Seger and Messrs. Hoskins and Stern dissenting, the

following longer-run policy for 1990 was approved by the Committee:

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 this meeting established

ranges for growth of M2 and M3 of 3 to 7 percent and

2-1/2 to 6-1/2 percent respectively, measured from the

fourth quarter of 1989 to the fourth quarter of 1990.

The monitoring range for growth of total domestic non

financial debt was set at 5 to 9 percent for the year.

The behavior of the monetary aggregates will continue

to be evaluated in the light of progress toward price

level stability, movements in their velocities, and

developments in the economy and financial markets.

With Ms. Seger and Messrs. Boykin and Hoskins dissenting from

the operational paragraph on policy implementation in the period

immediately ahead, 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 is continuing to expand despite

weakness in the industrial sector. Total nonfarm

payroll employment increased substantially in January

after growing at a reduced pace on average in previous

months; a surge in the service-producing sector and a

weather-related rebound in construction were only

partly offset by a large decline in the manufacturing

sector. The civilian unemployment rate was unchanged

at 5.3 percent. Partial data suggest that industrial

production in January was appreciably below its

average in the fourth quarter. Adjusted for

inflation, strong gains in consumer spending on

services in the fourth quarter offset declines in

consumer purchases of goods, especially motor

vehicles. Unusually cold weather depressed housing

starts appreciably in December, and residential

construction in the fourth quarter was little changed

from its third-quarter level. Business capital

spending, adjusted for inflation, declined in the

fourth quarter as a result of lower expenditures on

motor vehicles and strike activity in the aircraft

industry; spending on other types of capital goods was

strong, however, and new orders for equipment picked

up toward the end of the year. The nominal U.S.

merchandise trade deficit widened in October-November

from the third-quarter rate. Consumer prices had

risen somewhat more rapidly toward the end of 1989,

and prices of food and energy apparently increased

substantially further in January. The latest data on

labor compensation suggest no significant change in

prevailing trends.

Interest rates have risen in intermediate- and

long-term debt markets since the Committee meeting on

December 18-19; in short-term markets, the federal

funds rate has declined, and other short-term rates

show mixed changes over the period. In foreign

exchange markets, the trade-weighted value of the

dollar in terms of the other G-10 currencies declined

further over the intermeeting period; most of the

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depreciation was against the German mark and related

European currencies, and there was little change

against the yen.

Growth of M2 slowed in January, almost entirely

reflecting a drop in transaction deposits. Growth of

M3 also slowed in January as assets of thrift institu

tions and their associated funding needs apparently

continued to contract. For the year 1989, M2 expanded

at a rate a little below the middle of the Committee's

annual range, and M3 grew at a rate slightly below the

lower bound of its 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 this meeting established

ranges for growth of M2 and M3 of 3 to 7 percent and

2-1/2 to 6-1/2 percent respectively, measured from the

fourth quarter of 1989 to the fourth quarter of 1990.

The monitoring range for growth of total domestic non

financial debt was set at 5 to 9 percent for the year.

The behavior of the monetary aggregates will continue

to be evaluated in the light of progress toward price

level stability, movements in their velocities, and

developments in the economy and financial markets.

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 or slightly lesser reserve

restraint would 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 December through March at annual

rates of about 7 and 3-1/2 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 6 to 10

percent.

-17-

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

held on Wednesday, March 27, 1990.

The meeting adjourned.

Secretary

Secretary's note: Effective February 16, 1990,

available members of the Committee approved a

recommendation by the Manager for Domestic

Operations to relax temporarily some of the

constraints that apply to collateralized System

loans of government securities to primary dealers.

This action was taken to facilitate the orderly

liquidation of the government securities position

of a troubled primary dealer in such obligations.

In accordance with usual practice, all securities

loans would continue to be collateralized by U.S.

government obligations of greater current market

value.

Votes for this action: Messrs. Greenspan,

Corrigan, Angell, Boehne, Boykin, Hoskins,

Johnson, Kelley, and Stern. Votes against this

action: None. Absent and not voting: Mr. LaWare

and Ms. Seger.

The temporary liberalization of securities

lending terms was terminated effective March 13,

1990.