FOMC Minutes

Meeting of the Federal Open Market Committee

July 2-3, 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 Monday, July 2, 1990, at 3:10 p.m., and was continued

on Tuesday, July 3, 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

Kelley

LaWare

Mullins

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. Cross, Manager for Foreign Operations,

System Open Market Account

1.

2.

Mr. Boehne entered this meeting after the action to approve the

minutes for the May meeting.

Attended Tuesday session only.

Mr. Coyne, Assistant to the Board, 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. Danker, Chief, Banking and Money Market Analysis

Section, Division of Monetary Affairs, Board of

Governors

Messrs. Feinman and Krane, 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. Beebe, T. Davis, Scheld, and Ms. Tschinkel,

Senior Vice Presidents, Federal Reserve Banks of

San Francisco, Kansas City, Chicago, and Atlanta,

respectively

Mr. Cook, Ms. Lovett, and Mr. McNees, Vice Presidents,

Federal Reserve Banks of Richmond, New York, and

Boston, respectively

Mr. Thornton, Assistant Vice President, Federal Reserve

Bank of St. Louis

Ms. Krieger, Manager, Open Market Operations, 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 May 15, 1990, were approved.

By unanimous vote, System open market transactions in government

securities and federal agency obligations during the period May 15, 1990,

through July 2, 1990, were ratified.

Secretary's Note:

The following actions were taken on

Tuesday, July 3.

With Ms. Seger dissenting, the following ranges for growth of M2

and M3 and nonfinancial debt in 1990 were 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

international transactions. In furtherance of these

objectives the Committee reaffirmed at this meeting the

range it had established in February for M2 growth of 3

to 7 percent, measured from the fourth quarter of 1989

3.

Attended portion of meeting relating to the Committee's discussion

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

and debt aggregates.

to the fourth quarter of 1990. The Committee also

retained the monitoring range of 5 to 9 percent for the

year that it had set for growth of total domestic

nonfinancial debt. With regard to M3, the Committee

recognized that the ongoing restructuring of thrift

depository institutions had depressed its growth

relative to spending and total credit more than

anticipated. Taking account of the unexpectedly strong

M3 velocity, the Committee decided to reduce the 1990

range to 1 to 5 percent.

With Ms. Seger and Mr. LaWare dissenting, the following ranges

for growth of M2 and M3 and nonfinancial debt in 1991 were approved by

the Committee:

For 1991, the Committee agreed on provisional

ranges for monetary growth, measured from the fourth

quarter of 1990 to the fourth quarter of 1991, of 2-1/2

to 6-1/2 percent for M2 and 1 to 5 percent for M3. The

Committee tentatively set the associated monitoring

range for growth of total domestic nonfinancial debt at

4-1/2 to 8-1/2 percent for 1991. 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.

By unanimous vote, 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 but at

a relatively slow pace. Total nonfarm payroll employ

ment has increased at a much reduced rate in recent

months. Nevertheless, the civilian unemployment rate

has remained in a narrow range for an extended period

and was 5.3 percent in May. Industrial production

increased substantially in May, largely reflecting a

rebound in the manufacture of motor vehicles.

Consumer spending has been sluggish in recent months;

outlays for goods have declined while expenditures for

services have increased at a slower pace. Business

capital spending appears to have slackened a bit in

the spring after a pickup earlier in the year.

Residential construction has fallen to a relatively

low level in recent months. The nominal U.S.

-4-

merchandise trade deficit narrowed in April from its

average rate in the first quarter. Partly reflecting

an unwinding of the earlier jump in prices of food and

energy, consumer prices rose at a slower rate in April

and May, while producer prices were unchanged over the

two months. The latest data on wages suggest no

improvement in underlying trends.

Short-term interest rates have changed little on

balance since the Committee meeting on May 15, while

rates in long-term debt markets have declined somewhat

over the intermeeting period. The trade-weighted

foreign exchange value of the dollar in terms of the

other G-10 currencies.was somewhat higher over much of

the period but declined late in the period to a level

slightly below that prevailing at the time of the May

meeting.

M2 and M3 declined in May; available data for

June suggest a partial rebound in M2 and little change

in M3. Growth of M2 and especially of M3 has been

damped by the continuing contraction of deposits of

thrift institutions resulting from the restructuring

of the thrift industry. Through June, expansion of M2

was estimated to be in the lower portion of its range

for 1990 and growth of M3 somewhat below its range for

the year. Expansion of total domestic nonfinancial

debt appears to have been at the midpoint of its

monitoring 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

international transactions. In furtherance of these

objectives the Committee reaffirmed at this meeting

the range it had established in February for M2 growth

of 3 to 7 percent, measured from the fourth quarter of

1989 to the fourth quarter of 1990. The Committee

also retained the monitoring range of 5 to 9 percent

for the year that it had set for growth of total

domestic nonfinancial debt. With regard to M3, the

Committee recognized that the ongoing restructuring of

thrift depository institutions had depressed its

growth relative to spending and total credit more than

anticipated. Taking account of the unexpectedly

strong M3 velocity, the Committee decided to reduce

the 1990 range to 1 to 5 percent. For 1991, the

Committee agreed on provisional ranges for monetary

growth, measured from the fourth quarter of 1990 to

the fourth quarter of 1991, of 2-1/2 to 6-1/2 percent

for M2 and 1 to 5 percent for M3. The Committee

tentatively set the associated monitoring range for

growth of total domestic nonfinancial debt at 4-1/2 to

8-1/2 percent for 1991. 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 might or somewhat 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 June through

September at annual rates of about 3 and 1 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 Tuesday August 21, 1990.

The meeting adjourned.

Secretary