FOMC Minutes

Meeting of the Federal Open Market Committee

March 27, 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, March 27, 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. Kohn, Secretary and Economist

Mr. Bernard, Assistant Secretary

Mr.

Mr.

Mr.

Mr.

Mr.

Gillum, Deputy Assistant Secretary

Mattingly, General Counsel

Patrikis, Deputy General Counsel

Prell, Economist

Truman, Economist

Messrs. J. Davis, R. Davis, Lang, Lindsey,

Promisel, 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

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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

Mr. Smith, Assistant Director, Division of International

Finance, Board of Governors

Ms. Low, Open Market Secretariat Assistant, Division of

Monetary Affairs, Board of Governors

Mr. Bowen, First Vice President, Federal Reserve Bank of

St. Louis

Messrs. Balbach, Broaddus, T. Davis, Ms. Greene, Mr. Scheld,

and Ms. Tschinkel, Senior Vice Presidents, Federal

Reserve Banks of St. Louis, Richmond, Kansas City,

New York, Chicago, and Atlanta, respectively

Messrs. Fieleke, Judd, Ms. Lovett, and Mr. Meyer,

Vice Presidents, Federal Reserve Banks of Boston,

San Francisco, New York, and Philadelphia, respectively

Mr. Weber, Senior Research Officer, Federal Reserve Bank

of Minneapolis

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

the Federal Open Market Committee held on February 6-7, 1990, were

approved.

By unanimous vote, System open market transactions in foreign

currencies during the period February 7, 1990, through March 26, 1990,

were ratified.

With Messrs. Angell, Hoskins, and LaWare dissenting, paragraph 1.D

of the Authorization for Foreign Currency Operations was amended to raise

from $21 billion to $25 billion the dollar limit on the System's overall

open position in all foreign currencies.

With Messrs. Angell, Hoskins, and LaWare dissenting, the Committee

approved an increase in the amount of eligible foreign currencies that the

Federal Reserve would be prepared to warehouse for the U.S. Treasury and

1.

Attended portion of meeting devoted to discussion of foreign

currency operations.

the Exchange Stabilization Fund from $10 billion to as much as $15 billion,

effective March 27, 1990.

By unanimous vote, System open market transactions in government

securities and federal agency obligations during the period February 7,

1990, through March 26, 1990, were ratified.

By unanimous vote, paragraph 1.A of the Authorization for Domestic

Open Market Operations was amended to raise from $8 billion to $12 billion

the dollar limit on intermeeting changes in System Account holdings of U.S.

government and federal agency securities for the intermeeting period ending

May 15, 1990.

With Messrs. Boykin and Hoskins 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

some pickup in the expansion of economic activity from

the sluggish rate in the fourth quarter. Total non

farm payroll employment increased sharply in January

and February 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 net decline

in manufacturing. The civilian unemployment rate

remained at 5.3 percent. In February, production in

the manufacturing sector retraced its large January

decline, reflecting a swing in the production of motor

vehicles. Consumer spending has been affected in

recent months by fluctuations in expenditures for

motor vehicles and energy-related items but on balance

has expanded at a relatively slow pace; outlays for

goods have been weak while expenditures for services

have remained strong. Unusually mild weather con

tributed to a higher level of housing starts in

January and February. Business capital spending,

adjusted for inflation, appears to have turned up

after a decline in the fourth quarter, reflecting a

pickup in expenditures on motor vehicles and aircraft.

The nominal U.S. merchandise trade deficit widened in

January from its low December rate but remained at

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roughly its fourth-quarter average. Consumer prices

rose more rapidly over January and February, only

partly as a result of increases in prices of food and

energy.

Most short- and intermediate-term interest rates

have risen a little since the Committee meeting on

February 6-7; rates in long-term debt markets 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 rose over the

intermeeting period; much of the appreciation of the

dollar was against the yen.

Growth of M2 and M3 picked up considerably in

February, reflecting strength in transaction and other

liquid accounts; partial data for March suggested some

slowing from the February pace.

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 February

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 nonfinancial 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 March through June at annual

rates of about 6 and 4 percent respectively. The

Chairman may call for Committee consultation if it

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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.

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

held on Tuesday May 15, 1990.

The meeting adjourned.

Secretary