FOMC Minutes

Meeting of the Federal Open Market Committee

May 14, 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, May 14, 1991, at 2:00 p.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

Kohn, Secretary and Economist

Bernard, Deputy Secretary

Coyne, Assistant Secretary

Gillum, Assistant Secretary

Mattingly, General Counsel

Patrikis, Deputy General Counsel

Prell, Economist

Messrs. Broaddus, R. Davis, Lindsey, Scheld,

Siegman, Simpson, Slifman, and Ms. Tschinkel,

Associate Economists

Mr. Sternlight, Manager for Domestic Operations,

System Open Market Account

-2

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

Ms. Low, Open Market Secretariat Assistant, Division

of Monetary Affairs, Board of Governors

Messrs. Balbach, J. Davis, T. Davis, Ms. Greene, Mr. Lang,

Ms. Munnell, Messrs. Rolnick, and Rosenblum,

Senior Vice Presidents, Federal Reserve Banks of

St. Louis, Cleveland, Kansas City, New York,

Philadelphia, Boston, Minneapolis, and Dallas,

respectively

Mr. Judd, Vice President, Federal Reserve Bank of

San Francisco

Ms. 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 March 26, 1991, were approved.

The Report of Examination of the System Open Market Account, made

by the Board's Division of Reserve Bank Operations and Payment Systems as

of the close of business on October 31, 1990, was accepted.

By unanimous vote, amendments to the Committee's Rules Regarding

Availability of Information were approved.

By unanimous vote, System open market transactions in government

securities and federal agency obligations during the period March 26, 1991,

through May 13, 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 provides

mixed signals regarding the course of economic

activity, which had weakened appreciably further

earlier in the year. Following sharp decreases in

previous months, total nonfarm payroll employment fell

somewhat further in April; the civilian unemployment

rate edged down to 6.6 percent. Industrial output

changed little in April after declining markedly in

earlier months. Retail sales were about unchanged in

April and are now indicated to have risen somewhat in

March. Advance indicators continue to point to

weakness in business fixed investment in coming months.

Housing starts were down in March, partly offsetting a

sizable advance in February, but sales of new and

existing homes continued to rise. The nominal U.S.

merchandise trade deficit declined in February and its

January-February rate was considerably below the

average rate in the fourth quarter. Producer and

consumer prices were little changed over March and

April, partly reflecting further reductions in energy

prices.

Short-term interest rates have declined since the

Committee meeting on March 26, while bond yields have

changed little. The Board of Governors approved a

reduction in the discount rate from 6 to 5-1/2 percent

on April 30. The trade-weighted value of the dollar in

terms of the other G-10 currencies showed little change

on balance over the intermeeting period.

Growth of M2 and M3 weakened in April; for the

year thus far, expansion of M2 has been at the midpoint

of the Committee's range, while growth of M3 has been

in the upper half of its range.

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 4 and 2 percent,

respectively.

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

held on Tuesday-Wednesday, July 2-3, 1991.

The meeting adjourned.

Secretary