FOMC Minutes

Meeting of the Federal Open Market Committee

May 15, 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, May 15, 1990, at 2:00 p.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

Kohn, Secretary and Economist

Bernard, Assistant Secretary

Gillum, Deputy Assistant Secretary

Mattingly, General Counsel

Prell, Economist

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

Promisel, Rolnick, 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

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

Ms. Low, Open Market Secretariat Assistant, Division of

Monetary Affairs, Board of Governors

Messrs. Balbach, Beebe, Broaddus, T. Davis, Ms. Munnell,

Mr. Scheld, and Ms. Tschinkel, Senior Vice Presidents,

Federal Reserve Banks of St. Louis, San Francisco,

Richmond, Kansas City, Boston, Chicago, and Atlanta,

respectively

Mr. Cox, Vice President, Federal Reserve Bank of Dallas

Mr. Guentner, Assistant Vice President, 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 March 27, 1990, were approved.

By unanimous vote, System open market transactions in foreign

currencies during the period March 27, 1990, through May 14, 1990,

were ratified.

By unanimous vote, System open market transactions in government

securities and federal agency obligations during the period March 27, 1990,

through May 14, 1990, were ratified.

With Mr. 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

that economic activity is continuing to expand

moderately. Total nonfarm payroll employment

increased more slowly in March and April after sharp

advances earlier in the year; its average growth thus

far this year has been above that in the second half

of 1989, in part because of the hiring of temporary

workers for the census. In April, the civilian

unemployment rate moved up to 5.4 percent. Industrial

production declined in April, reflecting what appears

to be a temporary cutback in the manufacture of motor

vehicles. Consumer spending has been sluggish on

balance in recent months; outlays for goods have been

weak while expenditures for services have remained

strong. Business spending for equipment has been

rising, but construction activity, both residential

and nonresidential, appears to have weakened after a

temporary boost early in the year. The nominal U.S.

merchandise trade deficit narrowed somewhat in January

and February from its average rate in the fourth

quarter. Consumer prices continued to rise at a

faster pace in March than in 1989; producer prices

were down somewhat further in April, reflecting

additional unwinding of the earlier surge in prices of

food and energy. The latest data on employment costs

suggest some deterioration in underlying trends.

Short-term interest rates have declined a little

on balance since the Committee meeting on March 27,

while rates in long-term debt markets have risen

slightly over the period. In foreign exchange

markets, the trade-weighted value of the dollar in

terms of the other G-10 currencies declined con

siderably over the intermeeting period.

Growth of M2 slowed in April and that of M3

remained relatively weak. Through April, expansion of

M2 and M3 was a little above the midpoint and around

the lower end, respectively, of the ranges established

by the Committee for 1990.

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 4 and 3 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.

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

held on Monday-Tuesday July 2-3, 1990.

The meeting adjourned.

Secretary