FOMC Minutes

Meeting of the Federal Open Market Committee

December 17. 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, December 17, 1991, at 9:00 a.m.

PRESENT:

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Ms.

Greenspan, Chairman

Corrigan, Vice Chairman

Angell

Black

Forrestal

Keehn

Kelley

LaWare

Lindsey

Mullins

Parry

Phillips

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.

Mr.

Kohn, Secretary and Economist

Bernard, Deputy Secretary

Coyne, Assistant Secretary

Gillum, Assistant Secretary

Mattingly, General Counsel

Patrikis, Deputy General Counsel

Prell, Economist

Truman, Economist

Messrs. Beebe, Lindsey, Promisel, 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

Ms. Low, Open Market Secretariat Assistant,

Division of Monetary Affairs, Board of

Governors

Mr. Hendricks, First Vice President, Federal Reserve

Bank of Cleveland

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

Rolnick, and Rosenblum, Senior Vice Presidents,

Federal Reserve Banks of Cleveland, Kansas City,

New York, Philadelphia, Minneapolis, and Dallas,

respectively

Messrs. Frydl, Goodfriend, and McNees, Vice Presidents,

Federal Reserve Banks of New York, Richmond, and

Boston, respectively

Mr. Belongia, Assistant Vice President, Federal Reserve

Bank of St. Louis

Ms. Meulendyke, Manager, Open Market Operations, Federal

Reserve Bank of New York

Effective January 6, 1992, William J. McDonough was selected

by unanimous vote to serve at the pleasure of the Committee in the

capacity of Manager for Foreign Operations, System Open Market

Account, on the understanding that his selection was subject to his

being satisfactory to the Federal Reserve Bank of New York.

Secretary's Note: Advice was subsequently received that the

selection indicated above was satisfactory to the board of

directors of the 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 November 5, 1991,

were approved.

By unanimous vote, System open market transactions in foreign

currencies during the period November 5, 1991, through December 16,

1991, were ratified.

By unanimous vote, the Committee approved the renewal for one

year of the System's reciprocal currency arrangement with the

Netherlands Bank, including a modification relating to the interest

rate on drawings initiated by the System.

By unanimous vote, System open market transactions in

government securities and federal agency obligations during the period

November 5, 1991, through December 16, 1991, were ratified.

With Mr. LaWare dissenting, 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 continues

to portray a sluggish economy and a depressed state of

Total nonfarm pay

business and consumer confidence.

roll employment fell sharply in November; however, the

average workweek in the private nonfarm sector edged up

and the civilian unemployment rate remained at 6.8

percent. Industrial production fell in November,

partly reflecting a sizable drop in motor vehicle

assemblies. Consumer spending has been soft on balance

in recent months. Real outlays for business equipment

appear to be rising slowly, and nonresidential con

struction has continued to decline. Housing starts

were appreciably higher on average in October and

The nominal U.S.

November than in the third quarter.

merchandise trade deficit widened slightly further in

September; the deficit in the third quarter was sub

stantially larger than in the second quarter. Wage and

price increases have continued to trend downward.

Interest rates have declined appreciably since the

Committee meeting on November 5. The Board of

Governors approved a reduction in the discount rate

from 5 to 4-1/2 percent on November 6. In foreign

exchange markets, the trade-weighted value of the

dollar in terms of the other G-10 currencies declined

further over the intermeeting period; the dollar

depreciated primarily against the mark and other

European currencies.

Expansion in M2 and M3 edged up in November from a

slow pace in October; the slightly faster growth re

flected a strengthening in the most liquid components

of the aggregates. For the year through November,

expansion of both M2 and M3 is estimated to have been

at 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

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. 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 somewhat 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 November 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-Wednesday, February 4-5, 1992.

The meeting adjourned.

Secretary