FOMC Minutes

Meeting of the Federal Open Market Committee

October 2, 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, October 2, 1990, at 9:00 a.m.

PRESENT:

Mr. Greenspan, Chairman

Mr. Corrigan, Vice Chairman

Mr. Angell

Mr. Boehne

Mr. Boykin

Mr. Hoskins

Mr. Kelley

Mr. LaWare

Mr. Mullins

Ms. Seger

Mr. 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. Gillum, Deputy Assistant Secretary

Mr. Mattingly, General Counsel

Mr.

Mr.

Mr.

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

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. Low, Open Market Secretariat Assistant, Division of

Monetary Affairs, Board of Governors

Messrs. Broaddus, T. Davis, Scheld, and Ms. Tschinkel,

Senior Vice Presidents, Federal Reserve Banks of

Richmond, Kansas City, Chicago, and Atlanta,

respectively

Messrs. Judd, McNees, and Miller, Vice Presidents,

Federal Reserve Banks of San Francisco, Boston,

and Minneapolis, respectively

Mr. Belongia, Assistant Vice President, Federal Reserve

Bank of St. Louis

Ms. Ann Marie Meulendyke, 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 August 21, 1990, were approved.

By unanimous vote, System open market transactions in government

securities and federal agency obligations during the period August 21,

1990, through October 1, 1990, were ratified.

With Messrs. Angell, Boykin, Hoskins, and Ms. Seger 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 expanded at a slow pace in the

third quarter. The recent large increase in oil

prices has boosted key measures of inflation and

eroded real personal income; however, data available

thus far provide only limited evidence of a retarding

effect on production and aggregate spending. Total

nonfarm payroll employment declined in July and

August, reflecting layoffs of temporary census

workers; employment in the private sector changed

little over the two months. The civilian unemployment

rate edged up to 5.6 percent in August. Consumer

spending appeared to be about unchanged in real terms

-3-

over July and August but was at a level significantly

above the average for the second quarter. Advance

indicators of business capital spending point to some

softening in investment in coming months. Residential

construction weakened further in August. The nominal

U.S. merchandise trade deficit increased sharply in

July from the low rate in June. Markedly higher oil

prices contributed to substantial increases in

consumer and producer prices in August; excluding

energy and food items, consumer inflation has picked

up from the second-quarter rate. Data on labor costs

suggest no improvement in underlying trends.

In short-term debt markets, Treasury bill rates

have fallen somewhat since the Committee meeting on

August 21, while rates on private market instruments

are little changed. In the bond markets, most rates

have edged lower on balance over this period. The

trade-weighted foreign exchange value of the dollar in

terms of the other G-10 currencies has declined

slightly further on balance from the low level reached

at the time of the August meeting.

M2 and M3 expanded at appreciably faster rates in

August; available data for September suggest continued

strength in M2 and some slowing in the growth of M3.

More rapid expansion of Ml and money market funds has

contributed to the greater strength in the broad

aggregates over the two months. Through September,

expansion of M2 was estimated to be a little below the

middle of the Committee's range for the year and

growth of M3 in the lower portion of its range.

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 September through December at

annual rates of about 4 and 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 November 13, 1990.

The meeting adjourned.

Secretary