FOMC Minutes

Meeting of the Federal Open Market Committee

December 18, 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, December 18, 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

Kohn, Secretary and Economist

Bernard, Assistant Secretary

Gillum, Deputy Assistant Secretary

Mattingly, General Counsel

Prell, Economist

Truman, Economist

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

Promisel, Rolnick, Rosenblum, Siegman,

Simpson, and Stockton, Associate Economists

Mr. Sternlight, Manager for Domestic Operations,

System Open Market Account

-2

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. Beebe, T. Davis, Ms. Greene, Mr. Scheld, and

Ms. Tschinkel, Senior Vice Presidents, Federal Reserve

Banks of San Francisco, Kansas City, New York, Chicago,

and Atlanta, respectively

Mr. McTeer, Senior Vice President, Baltimore Branch

Messrs. Goodfriend and McNees, Vice Presidents, Federal

Reserve Banks of Richmond and Boston, respectively

Messrs. Guentner and Thornton, Assistant Vice Presidents,

Federal Reserve Banks of New York and St. Louis,

respectively

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

the Federal Open Market Committee held on November 13, 1990, were approved.

By unanimous vote, System open market transactions in government

securities and federal agency obligations during the period November 13,

1990, through December 17, 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 $14 billion

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

government and federal agency securities for the intermeeting period

through February 6, 1991.

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

appreciable weakening in economic activity. Total

nonfarm payroll employment fell sharply further in

November, reflecting widespread job losses that were

especially pronounced in manufacturing and construc

tion; the civilian unemployment rate rose to 5.9

percent. Industrial output declined markedly in

October and November, in part because of sizable

cutbacks in the production of motor vehicles. Retail

sales were weak in real terms in October and November;

real disposable income has been reduced not only by a

decrease in total hours worked but also by the effects

of higher energy prices. Advance indicators of

business capital spending point to considerable

softening in investment in coming months. Residential

construction has declined substantially further in

recent months. The nominal U.S. merchandise trade

deficit widened in October from its average rate in

the third quarter as non-oil imports rose more sharply

than exports. Increases in consumer prices moderated

in November largely as a result of a softening in oil

prices. The latest data on labor costs suggest some

improvement from earlier trends.

Most interest rates have fallen appreciably since

the Committee meeting on November 13. In foreign

exchange markets, the trade-weighted value of the

dollar in terms of the other G-10 currencies rose

slightly on balance over the intermeeting period.

M2 was about unchanged on balance over October

and November after several months of relatively

limited expansion, while M3 declined slightly in both

months. From the fourth quarter of 1989 through

November, expansion of M2 was estimated to be in the

lower half of the Committee's range for the year and

growth of M3 near the lower end 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 decrease slightly the

existing degree of pressure on reserve positions,

taking account of a possible change in the discount

rate. Depending upon progress toward price stability,

trends in economic activity, 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 November through March at annual

rates of about 4 and 1 percent, respectively.

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

held on Tuesday-Wednesday, February 5-6, 1991.

The meeting adjourned.

Secretary