FOMC Minutes

Meeting of the Federal Open Market Committee

August 20, 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.,

PRESENT:

on Tuesday, August 20,

1991,

Mr.

Mr.

Mr.

Mr.

Greenspan, Chairman

Corrigan, Vice Chairman

Angell

Black

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Forrestal

Keehn

Kelley

LaWare

Mullins

Parry

at 9:00 a.m.

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

Prell, Economist

Truman, 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

-2

Mr. Stockton, Associate Director, Division of

Research and Statistics, Board of Governors

Ms. Low, Open Market Secretariat Assistant,

Division of Monetary Affairs, Board of

Governors

Messrs. Balbach, J. Davis, T. Davis, Hoenig, and

Rosenblum, Senior Vice Presidents, Federal

Reserve Banks of St. Louis. Cleveland,

Kansas City, Kansas City, and Dallas,

respectively

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

Federal Reserve Banks of Boston, Philadelphia,

and Minneapolis

By unanimous vote, the minutes of actions taken at the

meeting of the Federal Open Market Committee held on July 2-3, 1991,

were approved.

By unanimous vote, System open market transactions in foreign

currencies during the period July 3, 1991, through August 19, 1991,

were ratified.

By unanimous vote, System open market transactions in

government securities and federal agency obligations during the period

July 3, 1991, through August 19, 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 has been

mixed, but it suggests on balance that economic

activity is expanding at a moderate pace. The

unemployment rate fell slightly to 6.8 percent in July,

but total nonfarm payroll employment edged down and the

average workweek posted a sharp decline. Industrial

production rose appreciably further in July. Consumer

spending has increased considerably in recent months,

led by sizable gains in expenditures for motor

vehicles. New orders for nondefense capital goods

point to little change in spending for business

equipment over the near term, and nonresidential

construction remains weak. Housing starts rose further

in June and July. The nominal U.S. merchandise trade

deficit declined in June, and its average for the

second quarter was somewhat below the rate in the first

Increases in consumer prices have been small

quarter.

in recent months.

Over the intermeeting period prior to August 19,

market interest rates declined appreciably and the

trade-weighted value of the dollar in terms of the

other G-10 currencies depreciated somewhat. Sub

sequently, in the wake of events in the Soviet Union,

Treasury bill rates fell somewhat further and the

dollar rebounded sharply against many European

currencies.

M2 contracted in July after several months of slow

For the year through July,

growth and M3 fell further.

expansion of M2 and M3 has been near the lower ends of

the Committee's ranges.

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 its

meeting in July reaffirmed the ranges it had estab

lished in February 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

The monitoring range for growth of

quarter of 1991.

total domestic nonfinancial debt also was maintained at

4-1/2 to 8-1/2 percent for the year. For 1992, on a

tentative basis, the Committee agreed in July to use

the same ranges as in 1991 for growth in each of the

monetary aggregates and debt, measured from the fourth

quarter of 1991 to the fourth quarter of 1992. With

regard to M3, the Committee anticipated that the

ongoing restructuring of thrift 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.

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 might or somewhat lesser reserve restraint

would be acceptable in the intermeeting period. The

contemplated reserve conditions are expected to be

consistent with a resumption of growth of M2 and M3 in

-4

the weeks ahead; but in view of the declines already

posted since June, the Committee anticipates that M2

would be little changed and M3 would be down at an

annual rate of about 1 percent over the period from

June through September.

It was agreed that the next meeting of the Committee would

be held on Tuesday, October 1, 1991.

The meeting adjourned.

Secretary