FOMC Minutes

Meeting of the Federal Open Market Committee

August 18. 1992

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, August 18, 1992, at 9:00 a.m.

PRESENT:

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Ms.

Mr.

Greenspan, Chairman

Corrigan, Vice Chairman

Angell

Hoenig

Jordan

Kelley

LaWare

Lindsey

Melzer

Mullins

Phillips

Syron

Messrs. Boehne, Keehn, McTeer, and Stern, Alternate

Members of the Federal Open.Market Committee

Messrs. Black, Forrestal, and Parry, Presidents of

the Federal Reserve Banks of Richmond,

Atlanta, and San Francisco, respectively

Mr. Kohn, Secretary and Economist

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Mr.

Bernard, Deputy Secretary

Coyne, Assistant Secretary

Gillum, Assistant Secretary

Mattingly, General Counsel

Patrikis, Deputy General Counsel

Prell, Economist

Truman, Economist

Messrs. Balbach, J. Davis, R. Davis, T. Davis,

Ms. Munnell, Messrs. Promisel, Siegman,

Simpson, and Stockton, Associate Economists

Mr. Sternlight, Manager for Domestic Operations,

System Open Market Account

Mr. McDonough, Manager for Foreign Operations,

System Open Market Account

-2

Mr. Ettin, Deputy 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

Mr. Guynn, First Vice President, Federal Reserve

Bank of Atlanta

Messrs. Beebe, Broaddus, Ms. Lovett, Messrs. Rolnick,

Rosenblum, and Scheld, Senior Vice Presidents,

Federal Reserve Banks of San Francisco, Richmond,

New York, Minneapolis, Dallas, and Chicago,

respectively

Mr. Meyer, Vice President, Federal Reserve Bank of

Philadelphia

By unanimous vote, the minutes of actions taken at the

meeting of the Federal Open Market Committee held on June 30-July 1,

1992, were approved.

By unanimous vote, William J. McDonough, Margaret L. Greene,

and Joan E. Lovett, were selected to serve at the pleasure of the

Committee in the capacities of Manager of the System Open Market

Account, Deputy Manager for Foreign Operations, and Deputy Manager for

Domestic Operations, respectively, on the understanding that their

selection was subject to their being satisfactory to the Federal

Reserve Bank of New York.

Secretary's Note:

This action was effective October 1, 1992.

Advice was subsequently received

that the selections of the Manager

and Deputy Managers indicated above

were satisfactory to the Federal

Reserve Bank of New York.

By unanimous vote, Section 5 of the Committee's Rules of

Organization was amended to read as follow:

Section 5--Manager and Deputies

The Committee selects a Manager of the System Open Market

Account, a Deputy Manager for Domestic Operations, and a Deputy

Manager for Foreign Operations. All of the foregoing shall be

satisfactory to the Federal Reserve Bank selected by the Committee

to execute open market transactions for such Account, and all

shall serve at the pleasure of the Committee. The Manager or his

Deputies keep the Committee informed on market conditions and on

transactions they have made and render such reports as the

Committee may specify.

By unanimous vote, System open market transactions in foreign

currencies during the period June 30, 1992, through August 17, 1992,

were ratified.

By unanimous vote, System open market transactions in

government securities and federal agency obligations during the period

June 30, 1992, through August 17, 1992, were ratified.

With Messrs. LaWare and Melzer 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 suggests

that economic activity is continuing to expand at a

subdued pace. Total nonfarm payroll employment

rebounded in July after declining in June, and the

civilian unemployment rate edged down to 7.7 percent.

Manufacturing output was unchanged in July, but overall

industrial production was boosted by a higher level of

mining and utility output. Retail sales increased

moderately in July. Permits issued for the con

struction of new housing units rose slightly in July,

but housing starts fell. Recent data on orders and

shipments of nondefense capital goods indicate further

increases in outlays for business equipment, while

nonresidential construction has remained soft. The

nominal U.S. merchandise trade deficit in April-May was

substantially above its average rate in the first

quarter. Incoming data on wages and prices suggest

that inflation is slowing.

Interest rates have declined considerably since

the Committee meeting on June 30-July 1. The Board of

Governors approved a reduction in the discount rate

from 3-1/2 to 3 percent on July 2. In foreign exchange

markets, the trade-weighted value of the dollar in

terms of the other G-10 currencies declined further

over the first several weeks of the intermeeting

period, but it has stabilized more recently.

M2 and M3 contracted somewhat further in July.

Through July, both aggregates were appreciably below

the lower ends of the ranges established by the

Committee for the year.

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 on June 30-July 1 reaffirmed the ranges it had

established 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 1991 to the fourth

quarter of 1992. The Committee anticipated that

developments contributing to unusual velocity increases

could persist in the second half of the year. The

monitoring range for growth of total domestic non

financial debt also was maintained at 4-1/2 to 8-1/2

percent for the year. For 1993, the Committee on a

tentative basis set the same ranges as in 1992 for

growth of the monetary aggregates and debt measured

from the fourth quarter of 1992 to the fourth quarter

of 1993. 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 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 June through December at annual rates of about

2 and 1/2 percent, respectively.

It was agreed that the next meeting of the Committee would

be held on Tuesday, October 6, 1992.

The meeting adjourned.

Secretary