FOMC Minutes

Meeting of the Federal Open Market Committee

March 26, 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, March 26, 1991, at 9:00 a.m.

PRESENT:

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Greenspan, Chairman

Corrigan, Vice Chairman

Angell

Black

Forrestal

Keehn

Kelley

LaWare

Mullins

Parry

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.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Kohn, Secretary and Economist

Bernard, Deputy Secretary

Coyne, Assistant Secretary

Gillum, Assistant Secretary

Mattingly, General Counsel

Patrikis, Deputy General Counsel

Prell, Economist

Messrs. Beebe, Broaddus, R. Davis, 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

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. Madigan, Assistant Director, Division of Monetary

Affairs, Board of Governors

Ms. Low, Open Market Secretariat Assistant, Division

of Monetary Affairs, Board of Governors

Messrs. Balbach, J. Davis, T. Davis, Lang,

Ms. Munnell, and Mr. Rosenblum, Senior Vice

Presidents, Federal Reserve Banks of St. Louis,

Cleveland, Kansas City, Philadelphia, Boston,

and Dallas, respectively

Ms. White, Vice President, Federal Reserve Bank of

New York

Mr. Weber, Senior Research Officer, Federal Reserve

Bank of Minneapolis

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

the Federal Open Market Committee held on February 5-6, 1991, were

approved.

By unanimous vote, System open market transactions in foreign

currencies during the period February 6, 1991, through March 25, 1991,

were ratified.

By unanimous vote, System open market transactions in government

securities and federal agency obligations during the period February 6,

1991, through March 25, 1991, 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 weakened further in the opening

months of 1991. In February, total nonfarm payroll

employment fell sharply further, especially in manu

facturing, and the civilian unemployment rate rose to

6.5 percent. Industrial output also declined markedly

again in February, with cutbacks evident in a wide

range of industries. Advance indicators point to

further weakness in business fixed investment in coming

months, notably in nonresidential construction. On the

other hand, after declining considerably in previous

months, retail sales turned up in February; consumer

sentiment appears to have rebounded sharply in recent

weeks. Housing starts jumped in February, retracing a

sizable decline in January but remaining at a low

level. The nominal U.S. merchandise trade deficit

increased somewhat in January but was considerably

below its average rate in the fourth quarter. Energy

prices fell substantially further in January and

February, but prices of other consumer goods and

services rose more rapidly than in preceding months.

Wage increases have moderated in recent months.

Short-term interest rates have declined slightly

since the Committee meeting on February 5-6. In

longer-term markets, rates on Treasury bonds have risen

appreciably, owing at least in part to heightened

expectations of a recovery in U.S. economic activity.

Risk premiums on corporate debt instruments have

declined, and stock prices have moved up considerably

on balance. The trade-weighted value of the dollar in

terms of the other G-10 currencies increased very

sharply over the intermeeting period.

Growth of M2 and M3 strengthened substantially in

February, reflecting rapid expansion in liquid retail

deposits; partial data suggest appreciable further

growth in March.

The Federal Open Market Committee seeks monetary

and financial conditions that will foster price

stability, promote a resumption of sustainable growth

in output, and contribute to an improved pattern of

international transactions. In furtherance of these

objectives, the Committee at its meeting in February

established ranges for growth of M2 and M3 of 2-1/2 to

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

measured from the fourth quarter of 1990 to the fourth

quarter of 1991. 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

thrift depository institutions would continue to

depress its growth 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.

In the implementation of policy for the immediate

future, the Committee seeks to maintain the existing

degree of pressure on reserve positions. 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, somewhat greater reserve

restraint or somewhat lesser reserve restraint might be

acceptable in the intermeeting period. The contem

plated reserve conditions are expected to be consistent

with growth of M2 and M3 over the period from March

through June at annual rates of about 5-1/2 and 3-1/2

percent, respectively.

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

held on Tuesday, May 14, 1991.

The meeting adjourned.

Secretary