FOMC Minutes

Meeting of the Federal Open Market Committee

February 5-6, 1991

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, February 5, 1991, at 2:30 p.m. and was

continued on Wednesday, February 6, 1991, at 9:00 a.m.

PRESENT:

Mr. Greenspan, Chairman

Mr. Corrigan, Vice Chairman

Mr. Angell

Mr. Black

Mr. Forrestal

Mr. Keehn

Mr. Kelley

Mr. LaWare

Mr. Mullins

Mr. Parry

Ms. Seger

Messrs. Guffey, Hoskins, Melzer, and Syron, Alternate

Members of the Federal Open Market Committee

Messrs. Boehne, McTeer, and Stern, Presidents of the

Federal Reserve Banks of Philadelphia, Dallas,

and Minneapolis, respectively

Mr. Kohn, Secretary and Economist

Mr. Bernard, Deputy Secretary

Mr. Coyne, Assistant Secretary

Mr. Gillum, Assistant Secretary

Mr. Mattingly, General Counsel

Mr. Prell, Economist

Messrs. Beebe, Broaddus, R. Davis, Lindsey,

Promisel, Scheld, Siegman, Simpson, Slifman,

and Ms. Tschinkel, Associate Economists

Mr. Sternlight, Manager for Domestic Operations,

System Open Market Account

Mr. Cross, Manager for Foreign Operations,

System Open Market Account

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Mr. Ettin, Deputy Director, Division of Research and

Statistics, Board of Governors

Mr. Stockton, Associate Director, Division of Research

and Statistics, Board of Governors

Mr. Hooper, Assistant Director, Division of International

Finance, Board of Governors

Mr. Rosine, Senior Economist, Division of Research and

Statistics, Board of Governors

Mr. Fisher, Economist, Division of Monetary Affairs,

Board of Governors

Ms. Low, Open Market Secretariat Assistant, Division of

Monetary Affairs, Board of Governors

Messrs. J. Davis, T. Davis, Lang, Rolnick, and

Rosenblum, Senior Vice Presidents, Federal Reserve

Banks of Cleveland, Kansas City, Philadelphia,

Minneapolis, and Dallas, respectively

Mr. McNees, Vice President, Federal Reserve Bank

of Boston

Mr. Thornton, Assistant Vice President, Federal Reserve

Bank of St. Louis

Ms. Krieger, Manager, Open Market Operations,

Federal Reserve Bank of New York

In the agenda for this meeting, it was reported that advices of

the election of the following members and alternate members of the Federal

Open Market Committee for the period commencing January 1, 1991, and ending

December 31, 1991, had been received and the named individuals had executed

their oaths of office.

The elected members and alternate members were as follows:

E. Gerald Corrigan, President of the Federal Reserve Bank of New York, with

James H. Oltman, First Vice President of the Federal Reserve Bank of

New York, as alternate;

Robert P. Black, President of the Federal Reserve Bank of Richmond,

with Richard F. Syron, President of the Federal Reserve Bank of

Boston, as alternate;

Silas Keehn, President of the Federal Reserve Bank of Chicago, with

W. Lee Hoskins, President of the Federal Reserve Bank of Cleveland,

as alternate;

Robert P. Forrestal, President of the Federal Reserve Bank of Atlanta, with

Thomas C. Melzer, President of the Federal Reserve Bank of St. Louis,

as alternate;

1.

Attended portion of meeting relating to the Committe's discussion

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

and debt aggregates.

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Thomas M. Hoenig, President of the Federal Reserve Bank of Kansas City,

with Gary H. Stern, President of the Federal Reserve Bank of

Minneapolis, as alternate.

By unanimous vote, the following officers of the Federal Open

Market Committee were elected to serve until the election of their

successors at the first meeting of the Committee after December 31, 1992,

with the understanding that in the event of the discontinuance of their

official connection with the Board of Governors or with a Federal Reserve

Bank, they would cease to have any official connection with the Federal

Open Market Committee:

Alan Greenspan

E. Gerald Corrigan

Chairman

Vice Chairman

Donald L. Kohn

Normand R. V. Bernard

Joseph R. Coyne

Gary P. Gillum

J. Virgil Mattingly, Jr.

Ernest T. Patrikis

Michael J. Prell

Edwin M. Truman

Secretary and Economist

Deputy Secretary

Assistant Secretary

Assistant Secretary

General Counsel

Deputy General Counsel

Economist

Economist

Anatol B. Balbach, John M. Davis,

Richard G. Davis, Thomas E. Davis,

David E. Lindsey, Alicia H. Munnell,

Larry J. Promisel, Charles J. Siegman,

Thomas D. Simpson, and David J. Stockton,

Associate Economists

By unanimous vote, the Federal Reserve Bank of New York was

selected to execute transactions for the System Open Market Account until

the adjournment of the first meeting of the Committee after December 31,

1992.

By unanimous vote, Peter D. Sternlight and William J. McDonough

were selected to serve at the pleasure of the Committee in the capacities

of Manager for Domestic Operations, System Open Market Account, and Manager

for Foreign Operations, System Open Market Account, respectively, on the

understanding that their selection was subject to their being satisfactory

to the Federal Reserve Bank of New York.

Secretary's note: Advice subsequently was received

that the selections indicated above were satisfactory

to the board of directors of the Federal Reserve Bank

of New York.

Secretary's note: On January 15, 1992, the continuing

rules, regulations, authorizations, and other instruments

of the Committee listed below had been distributed with

the advice that, in accordance with procedures approved

by the Committee, they were being called to the

Committee's attention before the February 4-5 organiza

tion meeting to give members an opportunity to raise any

questions they might have concerning them. Members were

asked to indicate if they wished to have any of the

instruments in question placed on the agenda for con

sideration at this meeting and no requests for such

consideration were received. Accordingly, all of the

instruments remained in effect in their existing forms.

1.

Procedures for allocation of securities in the

System Open Market Account.

2.

Authority for the Chairman to appoint a Federal

Reserve Bank as agent to operate the System Account

in case the New York Bank is unable to function.

3.

Resolution of FOMC to provide for the continued

operation of the Committee during an emergency;

Resolution of FOMC authorizing certain actions by

Federal Reserve Banks during an emergency.

4.

Resolution relating to examinations of the System

Open Market Account.

5.

Guidelines for the conduct of System operations in

Federal agency issues.

6. Regulation relating to Open Market Operations of

Federal Reserve Banks.

7.

Program for Security of FOMC Information.

8.

Federal Open Market Committee Rules.

By unanimous vote, the Authorization for Domestic Open Market

Operations shown below was reaffirmed:

AUTHORIZATION FOR DOMESTIC OPEN MARKET OPERATIONS

Reaffirmed February 4, 1992

1. The Federal Open Market Committee authorizes and directs the Federal

Reserve Bank of New York, to the extent necessary to carry out the most

recent domestic policy directive adopted at a meeting of the Committee:

(a) To buy or sell U. S. Government securities, including securities

of the Federal Financing Bank, and securities that are direct obliga

tions of, or fully guaranteed as to principal and interest by, any agency

of the United States in the open market, from or to securities dealers

and foreign and international accounts maintained at the Federal Reserve

Bank of New York, on a cash, regular, or deferred delivery basis, for the

System Open Market Account at market prices, and, for such Account, to

exchange maturing U. S. Government and Federal agency securities with the

Treasury or the individual agencies or to allow them to mature without

replacement; provided that the aggregate amount of U. S. Government and

Federal agency securities held in such Account (including forward

commitments) at the close of business on the day of a meeting of the

Committee at which action is taken with respect to a domestic policy

directive shall not be increased or decreased by more than $8.0 billion

during the period commencing with the opening of business on the day

following such meeting and ending with the close of business on the day

of the next such meeting;

(b) When appropriate, to buy or sell in the open market, from or to

acceptance dealers and foreign accounts maintained at the Federal Reserve

Bank of New York, on a cash, regular, or deferred delivery basis, for the

account of the Federal Reserve Bank of New York at market discount rates,

prime bankers acceptances with maturities of up to nine months at the

time of acceptance that (1) arise out of the current shipment of goods

between countries or within the United States, or (2) arise out of the

storage within the United States of goods under contract of sale or

expected to move into the channels of trade within a reasonable time and

that are secured throughout their life by a warehouse receipt or similar

document conveying title to the underlying goods; provided that the

aggregate amount of bankers acceptances held at any one time shall not

exceed $100 million;

(c) To buy U. S. Government securities, obligations that are direct

obligations of, or fully guaranteed as to principal and interest by, any

agency of the United States, and prime bankers acceptances of the types

authorized for purchase under 1(b) above, from dealers for the account

of the Federal Reserve Bank of New York under agreements for repurchase

of such securities, obligations, or acceptances in 15 calendar days or

less, at rates that, unless otherwise expressly authorized by the

Committee, shall be determined by competitive bidding, after applying

reasonable limitations on the volume of agreements with individual

dealers; provided that in the event Government securities or agency

issues covered by any such agreement are not repurchased by the dealer

pursuant to the agreement or a renewal thereof, they shall be sold in the

market or transferred to the System Open Market Account; and provided

further that in the event bankers acceptances covered by any such

agreement are not repurchased by the seller, they shall continue to be

held by the Federal Reserve Bank or shall be sold in the open market.

2. In order to ensure the effective conduct of open market operations,

the Federal Open Market Committee authorizes and directs the Federal

Reserve Banks to lend U. S. Government securities held in the System Open

Market Account to Government securities dealers and to banks

participating in Government securities clearing arrangements conducted

through a Federal Reserve Bank, under such instructions as the Committee

may specify from time to time.

3. In order to ensure the effective conduct of open market operations,

while assisting in the provision of short-term investments for foreign

and international accounts maintained at the Federal Reserve Bank of New

York, the Federal Open Market Committee authorizes and directs the

Federal Reserve Bank of New York (a) for System Open Market Account, to

sell U. S. Government securities to such foreign and international

accounts on the bases set forth in paragraph l(a) under agreements

providing for the resale by such accounts of those securities within 15

calendar days on terms comparable to those available on such trans

actions in the market; and (b) for New York Bank account, when

appropriate, to undertake with dealers, subject to the conditions imposed

on purchases and sales of securities in paragraph 1(c), repurchase

agreements in U. S. Government and agency securities, and to arrange

corresponding sale and repurchase agreements between its own account and

foreign and international accounts maintained at the Bank. Transactions

undertaken with such accounts under the provisions of this paragraph may

provide for a service fee when appropriate.

By unanimous vote, the Authorization for Foreign Currency

Operations shown below was reaffirmed:

AUTHORIZATION FOR FOREIGN CURRENCY OPERATIONS

Reaffirmed February 4, 1992

1. The Federal Open Market Committee authorizes and directs the

Federal Reserve Bank of New York, for System Open Market Account, to the

extent necessary to carry out the Committee's foreign currency directive

and express authorizations by the Committee pursuant thereto, and in

conformity with such procedural instructions as the Committee may issue

from time to time:

A. To purchase and sell the following foreign currencies in the form

of cable transfers through spot or forward transactions on the open

market at home and abroad, including transactions with the U. S.

Treasury, with the U. S. Exchange Stabilization Fund established by

Section 10 of the Gold Reserve Act of 1934, with foreign monetary

authorities, with the Bank for International Settlements, and with other

international financial institutions:

Austrian schillings

Belgian francs

Canadian dollars

Danish kroner

Pounds sterling

French francs

German marks

Italian lire

Japanese yen

Mexican pesos

Netherlands guilders

Norwegian kroner

Swedish kronor

Swiss francs

B. To hold balances of, and to have outstanding forward contracts to

receive or to deliver, the foreign currencies listed in paragraph A

above.

C. To draw foreign currencies and to permit foreign banks to draw

dollars under the reciprocal currency arrangements listed in paragraph 2

below, provided that drawings by either party to any such arrangement

shall be fully liquidated within 12 months after any amount outstanding

at that time was first drawn, unless the Committee, because of

exceptional circumstances, specifically authorizes a delay.

D. To maintain an overall open position in all foreign currencies

not exceeding $25.0 billion. For this purpose, the overall open position

in all foreign currencies is defined as the sum (disregarding signs) of

net positions in individual currencies. The net position in a single

foreign currency is defined as holdings of balances in that currency,

plus outstanding contracts for future receipt, minus outstanding

contracts for future delivery of that currency, i.e., as the sum of these

elements with due regard to sign.

2. The Federal Open Market Committee directs the Federal Reserve Bank

of New York to maintain reciprocal currency arrangements ("swap"

arrangements) for the System Open Market Account for periods up to a

maximum of 12 months with the following foreign banks, which are among

those designated by the Board of Governors of the Federal Reserve System

under Section 214.5 of Regulation N, Relations with Foreign Banks and

Bankers, and with the approval of the Committee to renew such

arrangements on maturity:

Foreign bank

Austrian National Bank

National Bank of Belgium

Bank of Canada

National Bank of Denmark

Bank of England

Bank of France

German Federal Bank

Bank of Italy

Bank of Japan

Bank of Mexico

Netherlands Bank

Bank of Norway

Bank of Sweden

Swiss National Bank

Bank for International Settlements:

Dollars against Swiss francs

Dollars against authorized European

currencies other than Swiss francs

Amount of arrangement

(millions of dollars

equivalent)

250

1,000

2,000

250

3,000

2,000

6,000

3,000

5,000

700

500

250

300

4,000

600

1,250

Any changes in the terms of existing swap arrangements, and the proposed

terms of any new arrangements that may be authorized, shall be referred

for review and approval to the Committee.

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3. All transactions in foreign currencies undertaken under paragraph

l.A above shall, unless otherwise expressly authorized by the Committee,

be at prevailing market rates. For the purpose of providing an

investment return on System holdings of foreign currencies, or for the

purpose of adjusting interest rates paid or received in connection with

swap drawings, transactions with foreign central banks may be undertaken

at non-market exchange rates.

4. It shall be the normal practice to arrange with foreign central

banks for the coordination of foreign currency transactions. In making

operating arrangements with foreign central banks on System holdings of

foreign currencies, the Federal Reserve Bank of New York shall not commit

itself to maintain any specific balance, unless authorized by the Federal

Open Market Committee. Any agreements or understandings concerning the

administration of the accounts maintained by the Federal Reserve Bank of

New York with the foreign banks designated by the Board of Governors

under Section 214.5 of Regulation N shall be referred for review and

approval to the Committee.

5. Foreign currency holdings shall be invested insofar as practicable,

considering needs for minimum working balances. Such investments shall

be in liquid form, and generally have no more than 12 months remaining to

maturity. When appropriate in connection with arrangements to provide

investment facilities for foreign currency holdings, U. S. Government

securities may be purchased from foreign central banks under agreements

for repurchase of such securities within 30 calendar days.

6. All operations undertaken pursuant to the preceding paragraphs shall

be reported promptly to the Foreign Currency Subcommittee and the

Committee. The Foreign Currency Subcommittee consists of the Chairman

and Vice Chairman of the Committee, the Vice Chairman of the Board of

Governors, and such other member of the Board as the Chairman may

designate (or in the absence of members of the Board serving on the

Subcommittee, other Board Members designated by the Chairman as

alternates, and in the absence of the Vice Chairman of the Committee, his

alternate). Meetings of the Subcommittee shall be called at the request

of any member, or at the request of the Manager for Foreign Operations,

for the purposes of reviewing recent or contemplated operations and of

consulting with the Manager on other matters relating to his

responsibilities. At the request of any member of the Subcommittee,

questions arising from such reviews and consultations shall be referred

for determination to the Federal Open Market Committee.

7.

The Chairman is authorized:

A. With the approval of the Committee, to enter into any needed

agreement or understanding with the Secretary of the Treasury about the

division of responsibility for foreign currency operations between the

System and the Treasury;

B. To keep the Secretary of the Treasury fully advised concerning

System foreign currency operations, and to consult with the Secretary on

policy matters relating to foreign currency operations;

C. From time to time, to transmit appropriate reports and

information to the National Advisory Council on International Monetary

and Financial Policies.

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8. Staff officers of the Committee are authorized to transmit pertinent

information on System foreign currency operations to appropriate

officials of the Treasury Department.

9. All Federal Reserve Banks shall participate in the foreign currency

operations for System Account in accordance with paragraph 3.G(1) of the

Board of Governors' Statement of Procedure with Respect to Foreign

Relationships of Federal Reserve Banks dated January 1, 1944.

By unanimous vote, the Foreign Currency Directive shown below

was reaffirmed:

FOREIGN CURRENCY DIRECTIVE

Reaffirmed February 4, 1992

1. System operations in foreign currencies shall generally be directed

at countering disorderly market conditions, provided that market exchange

rates for the U. S. dollar reflect actions and behavior consistent with

the IMF Article IV, Section 1.

2. To achieve this end the System shall:

A. Undertake spot and forward purchases and sales of foreign

exchange.

B. Maintain reciprocal currency ("swap") arrangements with selected

foreign central banks and with the Bank for International Settlements.

C. Cooperate in other respects with central banks of other countries

and with international monetary institutions.

3. Transactions may also be undertaken:

A. To adjust System balances in light of probable future needs for

currencies.

B. To provide means for meeting System and Treasury commitments in

particular currencies, and to facilitate operations of the Exchange

Stabilization Fund.

C. For such other purposes as may be expressly authorized by the

Committee.

4. System foreign currency operations shall be conducted:

A. In close and continuous consultation and cooperation with the

United States Treasury;

B. In cooperation, as appropriate, with foreign monetary

authorities; and

C. In a manner consistent with the obligations of the United States

in the International Monetary Fund regarding exchange arrangements under

the IMF Article IV.

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By unanimous vote, the Procedural Instructions with respect to

Foreign Currency Operations shown below were reaffirmed:

PROCEDURAL INSTRUCTIONS WITH RESPECT TO

FOREIGN CURRENCY OPERATIONS

Reaffirmed February 4, 1992

In conducting operations pursuant to the authorization and

direction of the Federal Open Market Committee as set forth in the

Authorization for Foreign Currency Operations and the Foreign Currency

Directive, the Federal Reserve Bank of New York, through the Manager for

Foreign Operations, System Open Market Account, shall be guided by the

following procedural understandings with respect to consultations and

clearance with the Committee, the Foreign Currency Subcommittee, and the

Chairman of the Committee. All operations undertaken pursuant to such

clearances shall be reported promptly to the Committee.

1. The Manager for Foreign Operations shall clear with the Subcommittee

(or with the Chairman, if the Chairman believes that consultation with

the Subcommittee is not feasible in the time available):

A. Any operation that would result in a change in the System's

overall open position in foreign currencies exceeding $300 million on any

day or $600 million since the most recent regular meeting of the

Committee.

B. Any operation that would result in a change on any day in the

System's net position in a single foreign currency exceeding $150

million, or $300 million when the operation is associated with repayment

of swap drawings.

C. Any

trading in a

the System's

specified in

operation that might generate a substantial volume of

particular currency by the System, even though the change in

net position in that currency might be less than the limits

1.B.

D. Any swap drawing proposed by a foreign bank not exceeding the

larger of (i) $200 million or (ii) 15 percent of the size of the swap

arrangement.

2. The Manager for Foreign Operations shall clear with the Committee

(or with the Subcommittee, if the Subcommittee believes that consultation

with the full Committee is not feasible in the time available, or with

the Chairman, if the Chairman believes that consultation with the

Subcommittee is not feasible in the time available):

A. Any operation that would result in a change in the System's

overall open position in foreign currencies exceeding $1.5 billion since

the most recent regular meeting of the Committee.

B. Any swap drawing proposed by a foreign bank exceeding the larger

of (i) $200 million or (ii) 15 percent of the size of the swap

arrangement.

3. The Manager for Foreign Operations shall also consult with the Sub

committee or the Chairman about proposed swap drawings by the System, and

about any operations that are not of a routine character.

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By unanimous vote, the Committee approved a decrease from $10

billion to $5 billion, effective February 4, 1992, in the amount of

eligible foreign currencies that the Federal Reserve would be prepared

to warehouse for the U. S. Treasury and the Exchange Stabilization Fund.

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

of the Federal Open Market Committee held on December 17, 1991, were

approved.

By unanimous vote, System open market transactions in foreign

currencies during the period December 17, 1991, through February 4,

1992, were ratified.

By unanimous vote, System open market transactions in

government securities and federal agency obligations during the period

December 17, 1991, through February 4, 1992, were ratified.

By unanimous vote, the following longer-run policy for 1992 was

approved by the Committee:

The Federal Open Market Committee seeks monetary

and financial conditions that will foster price sta

bility and promote sustainable growth in output. In

furtherance of these objectives, the Committee at this

meeting established ranges for growth of M2 and M3 of

2-1/2 to 6-1/2 percent and 1 to 5 percent, respect

ively, measured from the fourth quarter of 1991 to the

fourth quarter of 1992. The monitoring range for

growth of total domestic nonfinancial debt was set at

4-1/2 to 8-1/2 percent for the year. With regard to

M3, the Committee anticipated that the ongoing

restructuring of depository institutions would continue

to depress the growth of this aggregate relative to

spending and total credit. 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:

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The information reviewed at this meeting suggests

that economic activity has remained sluggish. Total

nonfarm payroll employment was little changed in

December, and the civilian unemployment rate rose to

7.1 percent. Industrial production fell slightly in

November and December, partly reflecting a sizable drop

in motor vehicle assemblies. Consumer spending has

been weak on balance in recent months amid continuing

indications of depressed consumer confidence and

essentially no growth in disposable income. Demand for

business equipment has been uneven, while nonresiden

tial construction has remained in a steep decline.

Single-family housing starts continued to recover in

December. The nominal U.S. merchandise trade deficit

narrowed in November, and for October-November combined

the trade balance improved substantially from the

third-quarter rate. Wage and price increases have

continued to trend downward.

Short-term interest rates have declined appre

ciably since the Committee meeting on December 17,

while longer-term rates have registered mixed changes.

The Board of Governors approved a reduction in the

discount rate from 4-1/2 to 3-1/2 percent on December

20. 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 inter

meeting period.

After accelerating somewhat in the fourth quarter,

M2 and M3 slowed in January, partly reflecting tempo

rary distortions around year-end. For the year 1991,

the expansion of both M2 and M3 is estimated to have

been at rates a little above the lower ends of the

Committee's ranges. Growth of total domestic nonfinan

cial debt appears to have been marginally above the

lower end of the Committee's monitoring range for the

year.

The Federal Open Market Committee seeks monetary

and financial conditions that will foster price sta

bility and promote sustainable growth in output. In

furtherance of these objectives, the Committee at this

meeting established ranges for growth of M2 and M3 of

2-1/2 to 6-1/2 percent and 1 to 5 percent, respect

ively, measured from the fourth quarter of 1991 to the

fourth quarter of 1992. The monitoring range for

growth of total domestic nonfinancial debt was set at

4-1/2 to 8-1/2 percent for the year. With regard to

M3, the Committee anticipated that the ongoing

restructuring of depository institutions would continue

to depress the growth of this aggregate relative to

spending and total credit. The behavior of the

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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. In the

context of the Committee's long-run objectives for

price stability and sustainable economic growth, and

giving careful consideration to economic, financial,

and monetary developments, slightly greater reserve

restraint might 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 December through March at annual rates of about 3

and 1-1/2 percent, respectively.

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

held on Tuesday, March 31, 1992.

The meeting adjourned.

Secretary