FOMC Minutes

Meeting of the Federal Open Market Committee

August 21, 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, August 21, 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. 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.

Kohn, Secretary and Economist

Bernard, Assistant Secretary

Gillum, Deputy Assistant Secretary

Mattingly, General Counsel

Prell, Economist

Truman, Economist

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

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

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

Mr. Hooper, Assistant Director, Division of International

Finance, Board of Governors

Ms. Low, Open Market Secretariat Assistant, Division of

Monetary Affairs, Board of Governors

Mr. Monhollon, First Vice President, Federal Reserve

Bank of Richmond

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

Senior Vice Presidents, Federal Reserve Banks of

St. Louis, San Francisco, Richmond, Kansas City,

and Chicago, respectively

Messrs. Fieleke, Meyer, Miller and Ms. White,

Vice Presidents, Federal Reserve Banks of

Boston, Philadelphia, Minneapolis, and New York,

respectively

Ms. Rosenbaum, Research Officer, Federal Reserve Bank

of Atlanta

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

the Federal Open Market Committee held on July 2-3, 1990, were approved.

By unanimous vote, System open market transactions in government

securities and federal agency obligations during the period July 3, 1990,

through August 20, 1990, were ratified.

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 at a

relatively slow pace. After a sizable rise in May and

June, total nonfarm payroll employment registered a

large decline in July, much but not all of which

reflected layoffs of temporary census workers. The

civilian unemployment rate rose to 5.5 percent in

July, just above the narrow range that had prevailed

for an extended period. Industrial production was

unchanged in July after rising appreciably in the

second quarter. Retail sales rose considerably on

balance over June and July after declines in earlier

months. Available indicators point to a sluggish

trend in business capital spending. Residential

-3construction weakened further in July. The nominal

U.S. merchandise trade deficit narrowed sharply in

June; for the second quarter, the trade deficit was

substantially reduced from its first-quarter rate.

Consumer prices rose appreciably further in June and

July, while producer prices were about unchanged over

the two months. The latest data on labor costs

suggest no improvement in underlying trends. Crude

oil prices have risen sharply over the last several

weeks.

Short-term interest rates have fallen somewhat

since the Committee meeting on July 2-3, while rates

in bond markets have risen appreciably, as oil prices

have increased. The trade-weighted foreign exchange

G-10

value of the dollar in terms of the other

currencies declined considerably over the intermeeting

period.

M2 grew slowly in June and July, while M3 was

little changed; available data for August suggest a

partial rebound in both aggregates. Growth of M2 and

especially of M3 has been damped by the continuing

contraction of deposits at thrift institutions

resulting from the restructuring of the thrift

industry. Through July, expansion of both M2 and M3

was estimated to be in the lower portions of their

respective ranges for 1990. Expansion of total

domestic nonfinancial debt appears to have been near

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 at its meeting in July

reaffirmed 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 in July 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 on

going 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 in July to reduce the 1990 range to 1 to 5

percent. For 1991, the Committee agreed on pro

visional 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 non

financial 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 inter

meeting 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 4 and 2-1/2 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.

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

held on Tuesday October 2, 1990.

The meeting adjourned.

Secretary