FOMC Minutes

Meeting of the Federal Open Market Committee

October 1. 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, October 1, 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. Hoenig, 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, 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. Ettin, Deputy Director, Division of Research

and Statistics, Board of Governors

Mr. Stockton, Associate Director, Division of

Research and Statistics, Board of Governors

Ms. Johnson, Assistant Director, Division of

International Finance, Board of Governors

Ms. Low, Open Market Secretariat Assistant,

Division of Monetary Affairs, Board of

Governors

Mr. Hendricks, First Vice President, Federal

Reserve Bank of Cleveland

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

Ms. Munnell, Messrs. Rolnick, and

Rosenblum, Senior Vice Presidents,

Federal Reserve Banks of St. Louis,

Cleveland, Kansas City, Philadelphia,

Boston, Minneapolis, and Dallas,

respectively

Secretary's Note: Prior to this meeting, notice

had been received of the election of Thomas M. Hoenig

as alternate member of the Federal Open Market

Committee for the period October 1, 1991 through

December 31, 1991, and Mr. Hoenig had executed

his Oath of Office.

By unanimous vote, the minutes of actions taken at the

meeting of the Federal Open Market Committee held on August 20, 1991,

were approved.

By unanimous vote, System open market transactions in

government securities and federal agency obligations during the period

August 20, 1991, through September 30, 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 has been expanding at a moderate pace. Total

nonfarm payroll employment changed little over July and

August, and the civilian unemployment rate was 6.8

percent in both months. Employment in manufacturing

continued to advance in August, and industrial

production posted a further rise after several months

of sizable gains.

Consumer spending increased

considerably on balance in July and August. Recent

data on orders and shipments of nondefense capital

goods point to a small increase in real outlays for

business equipment, but nonresidential construction has

remained weak. Housing starts rose only slightly

further in July and August after increasing appreciably

on balance since January. The nominal U.S. merchandise

trade deficit widened substantially in July and was

considerably above its average rate in the second

quarter. Increases in consumer prices have been small

in recent months, owing to declines in food and energy

prices.

Most interest rates have declined further since

the Committee meeting on August 20. The Board of

Governors approved a reduction in the discount rate

The trade

from 5-1/2 to 5 percent on September 13.

weighted value of the dollar in terms of the other

G-10 currencies fell sharply over the intermeeting

period; much of the drop retraced the previous run-up

associated with the attempted coup in the Soviet Union

that began shortly before the August Committee meeting.

After contracting in July, M2 was about unchanged

in August and September. M3 declined further in July

and August and is indicated to have changed little in

September. For the year thus far, expansion of M2 and

M3 has been at the lower end 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

quarter of 1991. The monitoring range for growth of

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, 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 September through December 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, November 5, 1991.

The meeting adjourned.

Secretary