FOMC Minutes

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,

1998, at 9:00 a.m.

Present:

Mr. Greenspan, Chairman

Mr. McDonough, Vice Chairman

Mr. Ferguson

Mr. Gramlich

Mr. Hoenig

Mr. Jordan

Mr. Kelley

Mr. Meyer

Ms. Minehan

Mr. Poole

Ms. Rivlin

Messrs. Boehne, McTeer, Moskow, and Stern, Alternate Members of the Federal

Open Market Committee

Messrs. Guynn and Parry, Presidents of the Federal Reserve Banks of Atlanta and

San Francisco respectively

Mr. Kohn, Secretary and Economist

Mr. Bernard, Deputy Secretary

Ms. Fox, Assistant Secretary

Mr. Gillum, Assistant Secretary

Mr. Mattingly, General Counsel

Mr. Baxter, Deputy General Counsel

Mr. Prell, Economist

Mr. Truman, Economist

Messrs. Cecchetti, Dewald, Hakkio, Lindsey, Simpson, Sniderman, and Stockton,

Associate Economists

Mr. Fisher, Manager, System Open Market Account

Mr. Ettin, Deputy Director, Division of Research and Statistics, Board of Governors

Messrs. Madigan and Slifman, Associate Directors, Divisions of Monetary Affairs

and Research and Statistics respectively, Board of Governors

Mr. Hooper and Ms. Johnson, Associate Directors, Division of International Finance,

Board of Governors

Mr. Reinhart, Deputy Associate Director, Division of Monetary Affairs, Board of

Governors

Mr. Struckmeyer, Assistant Director, Division of Research and Statistics, Board of

Governors

Ms. Low, Open Market Secretariat Assistant, Division of Monetary Affairs, Board of

Governors

Ms. Strand and Mr. Varvel, First Vice Presidents, Federal Reserve Banks of

Minneapolis and Richmond respectively

Messrs. Beebe, Goodfriend, and Rosenblum, Senior Vice Presidents, Federal Reserve

Banks of San Francisco, Richmond, and Dallas respectively

Messrs. Bolwell, King, Kopcke, Meyer, and Sullivan, Vice Presidents, Federal

Reserve Banks of New York, Atlanta, Boston, Philadelphia, and Chicago respectively

Mr. Weber, Senior Research Officer, Federal Reserve Bank of Minneapolis

By unanimous vote, the minutes of the meeting of the Federal Open Market Committee held

on June 30-July 1, 1998, were approved.

The Manager of the System Open Market Account reported on developments in foreign

exchange markets during the period since the previous meeting. There were no open market

operations in foreign currencies for the System's account during this period, and thus no vote

was required of the Committee.

The Manager also reported on developments in domestic financial markets and on System

open market transactions in government securities and federal agency obligations during the

period July 1, 1998, through August 17, 1998. By unanimous vote, the Committee ratified

these transactions.

The Committee then turned to a discussion of the economic and financial outlook and the

implementation of monetary policy over the intermeeting period ahead. A summary of the

economic and financial information available at the time of the meeting and of the

Committee's discussion is provided below, followed by the domestic policy directive that was

approved by the Committee and issued to the Federal Reserve Bank of New York.

The information reviewed at this meeting suggested that domestic final demand continued to

expand at a robust pace. However, increases in consumer spending and business investment

seemed to be moderating somewhat after very large gains earlier in the year, and inventory

investment had slowed markedly. Net exports remained weak as a result of the persisting

turmoil in Asian economies. The strike at General Motors had damped overall economic

activity temporarily, but total payroll employment continued to trend upward, and labor

markets remained extremely tight. Despite the pressures on labor resources, trends in wages

and prices had remained stable in recent months.

Nonfarm payroll employment expanded further in July even though manufacturing payrolls

plunged in association with the General Motors strike; job growth remained strong in most

non-manufacturing sectors. Construction employment continued to increase at about the

brisk pace recorded over the first half of the year, and hiring in retail trade surged. The

expansion of jobs in the services industry slowed considerably in July, but this partly

reflected a decline in temporary help jobs related to the GM strike. The civilian

unemployment rate was unchanged in July at 4.5 percent.

Industrial production declined considerably in June and July. Abstracting from the effects of

the GM strike, manufacturing output fell slightly over the June-July period after having

recorded moderate gains on average in earlier months of the year; production of business

equipment expanded briskly in June and July, while the output of consumer goods and

materials weakened. The rate of utilization of manufacturing capacity was down appreciably

in June and July, mostly reflecting the effects of the GM strike.

Total nominal retail sales fell in July after having risen at a rapid pace in the first half of the

year. A sharp contraction in spending for motor vehicles, reflecting the termination at

midyear of sales incentives offered by the Big Three automakers and shrinking inventories at

GM dealers, more than accounted for the drop in July. Non-auto-related outlays continued on

a robust upward trend, with gains evident in all major categories. Sales increases were

particularly large at furniture and appliance stores and apparel outlets. In the housing sector,

both demand and construction activity remained strong. Starts of single-family units edged

down in May but rebounded in June. Sales of new homes were at an all-time high in June,

and sales of existing homes were only a little below the record level reached in March of this

year. With sales robust, the inventory of unsold new homes remained low.

Growth of business fixed investment slowed in the second quarter as the pace of business

spending for durable equipment moderated considerably from the exceptionally strong rate of

earlier in the year. Nonetheless, outlays for computer and communications equipment

continued to expand rapidly in the second quarter, and purchases of other capital goods rose

briskly. Available information suggested that growth in business spending on capital goods

likely would slow further in the months ahead. In contrast to the strength in equipment

spending, expenditures on nonresidential building declined further in the second quarter, and

available indicators pointed to a mixed outlook for this sector in coming months.

Business inventory investment slowed sharply in the second quarter, owing in substantial

measure to a runoff of motor vehicle inventories at the wholesale and retail levels. In

manufacturing, stockbuilding slowed somewhat in the second quarter, and the stockshipments ratio at the end of the quarter remained close to the low level that had prevailed

over the past year. Wholesale inventories changed little on balance in the second quarter as a

sizable decline in motor vehicle stocks offset a buildup of non-auto durable goods; in June,

the aggregate inventory-sales ratio for this sector was at the upper end of its narrow range for

the past year. At the retail level, a drop in inventories of motor vehicles in the second quarter

more than offset a small increase in stocks at non-auto retailers, and the aggregate

inventory-sales ratio in June was a little below the lower end of its range for the past year.

The nominal deficit on U.S. trade in goods and services widened substantially further in the

second quarter; the value of exports of goods and services declined for a second straight

quarter, while the value of imports continued to rise, though at a somewhat reduced pace.

Much of the decline in exports in the second quarter was in capital goods, but there also were

noticeable decreases in most other major trade categories. The increase in imports was

concentrated in imported consumer goods, aircraft, and steel. Economic activity in most of

the major foreign industrial countries continued to expand, though at a slower rate, in the

second quarter. In Japan, however, economic activity appeared to have contracted sharply

further in the second quarter. In most other Asian economies, currencies and equity prices

were under downward pressure, and in Russia, asset values plummeted in often disorderly

markets. Risk spreads on dollar-denominated debt widened substantially, not only in Russia

but for Latin American issuers as well.

Price and wage inflation had remained relatively stable in recent months. Both the overall

CPI and the CPI excluding food and energy items rose slightly on balance in June and July; a

small rise in food prices offset a noticeable decline in energy prices over the two-month

period. For the twelve months ended in July, the core CPI registered a slightly smaller

increase than it had in the year-earlier period, partly reflecting lower prices for new motor

vehicles. Producer prices of finished goods changed little on balance in June and July; a

sizable drop in the prices of energy products over the June-July period more than offset a

modest rise in core producer prices. For the year ended in July, core producer prices rose

somewhat more than in the year-earlier period, reflecting larger increases in the prices of

finished consumer goods. Hourly compensation of private industry workers rose in the

second quarter at about the average rate for the previous two quarters. For the year ended in

June, however, hourly compensation picked up significantly from the year-earlier period; the

acceleration in compensation was evident in wages and salaries and in benefits.

At its meeting on June 30-July 1, 1998, the Committee adopted a directive that called for

maintaining conditions in reserve markets that would be consistent with the federal funds rate

continuing to average around 5-1/2 percent. With the balance of risks still pointing to the

possibility of rising inflation over time, the Committee chose to retain an asymmetric

directive tilted toward a possible firming of reserve conditions and a higher federal funds

rate. The reserve conditions associated with this directive were expected to be consistent with

moderate growth in M2 and M3 over the months ahead.

Open market operations were directed throughout the period since the meeting on June

30-July 1 toward maintaining the existing degree of pressure on reserve positions, and the

federal funds rate averaged a little above the intended level of 5-1/2 percent. Most other

interest rates fell slightly on balance over the intermeeting period in response to market

assessments that worsening conditions in Asia, Latin America, and Russia portended slower

growth in U.S. output and inflation over an extended period ahead. Declines in Treasury

yields also reflected a continuing flight toward safety and quality from the persisting

turbulence in foreign markets. In an atmosphere of increasing concerns about the prospects

for corporate earnings, share prices in U.S. equity markets remained volatile and major

indexes declined appreciably on balance over the intermeeting period.

In foreign exchange markets, the trade-weighted value of the dollar rose somewhat further

over the intermeeting period in relation to other major currencies. The dollar changed little

against the continental European currencies but it moved up strongly against the Japanese

yen and, to a lesser extent, the Canadian dollar. The dollar's rise in terms of the yen reflected

spreading pessimism regarding the Japanese government's ability to redress the problems of

its troubled banking system and provide fiscal stimulus adequate to turn its economy around.

The dollar's advance against the Canadian dollar occurred in the context of continuing

weakness in global commodity prices that was weighing down that currency. The dollar also

appreciated slightly in terms of an index of the currencies of the developing countries of

Latin America and Asia that are important trading partners of the United States.

After having expanded briskly in the second quarter, M2 grew at a somewhat more moderate

rate in July, and M3 changed little. The deceleration in M2 reflected reduced inflows to retail

money market funds. The halt in the growth of M3 was associated with a sharp runoff of

large time deposits and outflows from institution-only money market funds triggered by a

temporary spike in interest rates on market instruments around quarter-end. For the year

through July, both aggregates rose at rates well above the Committee's ranges for the year.

Expansion of total domestic nonfinancial debt appeared to have moderated somewhat in

recent months after a pickup earlier in the year.

The staff forecast prepared for this meeting indicated that economic activity would expand

through 1999 at a pace somewhat below the estimated growth of the economy's potential.

Reduced growth of foreign economic activity and the lagged effects of the sizable earlier rise

in the foreign exchange value of the dollar were anticipated to place substantial restraint on

the demand for U.S. exports and to lead to further substitution of imports for domestic

products. Moreover, additional moderation in business inventory investment would damp

domestic production as inventory accumulation was brought into better balance with the

forecast of a more moderate trajectory of final sales. The staff analysis suggested that the

prospective gains in income coupled with the earlier run-up in household wealth would

support further brisk, though gradually diminishing, gains in consumer spending. Housing

demand was expected to remain relatively strong in the context of the persisting favorable

cash flow affordability of home ownership, though the slower income growth anticipated

over the projection period would damp homebuilding somewhat. Growth in business fixed

investment would gradually moderate from the vigorous pace of the first half of the year in

response to smaller increases in business sales and profits. Pressures on labor resources were

likely to diminish somewhat as the expansion of economic activity slowed, but inflation was

expected to pick up gradually as a result of an anticipated reversal of some of the decline in

energy prices this year.

In the Committee's discussion of current and prospective economic conditions, members

focused on the disparate forces that continued to shape trends in economic activity, notably

the persist- ence of considerable strength in private domestic spending and the damping

influences stemming from foreign economic developments. The latter seemed likely to be

larger than previously anticipated as financial turmoil in some foreign economies had

deepened and spread and currently showed few signs of stabilizing. Moreover, equity prices

and risk spreads in U.S. financial markets were beginning to be adversely affected,

potentially slowing domestic demand. The members generally anticipated somewhat more

moderate growth than they had in their previous forecasts, with prospective expansion at a

pace near or somewhat below the growth of economy's potential. Nonetheless, they remained

concerned about the potential for higher inflation, given the widespread tightness in labor

markets and an upward tilt in the rise of labor compensation. For the present, however,

inflation remained subdued, and it was likely to remain relatively low for some time in light

of the weakness in commodity and other import prices and the tendency for low current

inflation to hold down expected price increases.

Among the factors bearing on the outlook for domestic economic activity, the members

viewed the external sector as a major source of uncertainty. The continued rapid decline in

net exports during the first half of the year largely seemed to reflect the further financial

unsettlement and a deeper contraction in Asian economies than had been anticipated earlier,

and several members commented that they saw little evidence that financial and economic

conditions in Asia were stabilizing. Indeed, such conditions appeared to be worsening further

in some Asian nations, and other countries had been affected by the associated weakening in

the demand for commodities and the more risk-averse attitudes of investors. Anecdotal

reports at this meeting suggested that the impact on the domestic economy was being felt by

manufacturing firms in several industries, although some firms also reported that declining

exports to Asia were being offset at least in part by rising exports to other areas of the world.

Looking ahead, the members agreed that the duration and extent of disruptions in Asian and

other economies could not be anticipated with any degree of confidence; while net exports

were not expected to decline as rapidly as they had in the first half of the year, even more

serious disruptions in Asia could not be ruled out and would have important implications for

the U.S. economy.

In their review of developments in key expenditure sectors of the domestic economy,

members observed that over the first half of the year the strength in domestic final demand,

notably in the consumer and business investment sectors, had more than offset the negative

effects of developments in the foreign sector and other factors. In the consumer sector, the

outlook for further sizable increases in spending was buttressed by unusually favorable

underlying factors, including solid ongoing gains in employment and incomes and substantial

further increases in household net worth this year. A pause in the robust gains in retail sales

in early summer was accounted for in part by limited inventories of new motor vehicles

associated with the now-settled GM strike. While a variety of factors pointed to sustained

growth in consumer spending, a less ebullient stock market, should it persist, would foster

more moderate expansion in consumer spending, perhaps at a pace more in line with the rise

in consumer incomes, or at an even slower pace if consumer confidence were adversely

affected by developments in financial markets.

Business fixed investment also seemed to be on a solid upward trajectory, though some

slowing in the growth of business investment spending was anticipated in response to a

projected deceleration in overall business output and weaker business profits. Members

continued to cite anecdotal evidence of very strong construction activity in many parts of the

country, including indications that building projects were being delayed because of shortages

of labor and some construction materials. In other parts of the country, building activity

remained at a high level but seemed to have moderated somewhat. Business spending for

various types of high-tech equipment had surged to an undoubtedly unsustainable pace in the

first half of the year. Against this background, several members referred to emerging signs of

slightly more cautious attitudes among their business contacts, in many cases the result of

concerns about developments in Asia. On balance, diminishing momentum in business

investment appeared to be a likely prospect, but the ample availability of financing on

favorable terms would continue to support this sector.

In the housing sector, construction activity remained at a high level in most parts of the

nation and, as was the case for construction activity more generally, homebuilding continued

to be restrained in a number of areas by limits on the availability of labor and other inputs.

The housing market clearly was benefiting from strong gains in household incomes, high

levels of household wealth, and very attractive financing costs. There were few indications of

any moderation in this sector of the economy. Even so, some slowing was anticipated, at least

after current construction backlogs were satisfied, in response to the projected slowing in

employment growth and the high level of the housing stock.

Currently available data indicated that the pace of inventory accumulation had moderated

substantially in the second quarter. Nonetheless, the rate of non-auto inventory investment in

the spring still appeared to have exceeded a pace that was consistent with sustainable growth

in sales. Anecdotal reports at this meeting pointed to a somewhat mixed picture with regard

to desired inventory levels, including examples of both overstocking and shortages. Looking

ahead and apart from short-run fluctuations, inventories were not expected to add to demand

over coming quarters, at least after the restocking of motor vehicles by General Motors was

completed.

In the Committee's discussion of the outlook for wages and prices, members commented that

the rate of inflation in consumer prices was difficult to characterize with precision because

alterna- tive price indexes provided different measurement results; in particular, chain price

indexes for consumption expenditures showed substantially less inflation than the CPI. Even

so, it was clear on the basis of any measure that consumer prices and inflation more generally

had remained remarkably subdued in the context of very tight labor markets and upward

pressure on labor compensation. And whatever the explanation, it seemed that the economy

had been less prone to rising inflation than it had been historically under similarly tight labor

market conditions. The members acknowledged that a number of special factors were

contributing to the relatively benign inflation climate. Those factors included the appreciation

of the dollar; declines in many commodity prices, notably that of oil; ample industrial

capacity; and evidently diminished inflation expectations. Moreover, substantial gains in

productivity were muting the effects of rising labor compensation on unit costs, and vigorous

competition in numerous markets was continuing to make it very difficult or impossible for

business firms to raise their prices to cover rising costs or enhance profit margins. Against

this backdrop, members remained persuaded that a significant rise in price inflation was not

likely to occur in the nearer term.

Looking further ahead, however, the members generally agreed that rising price inflation

remained an important threat. Significant additional tightening in labor markets would, of

course, exacerbate that risk, but even at current levels these markets were tight and at some

point labor costs could increase more rapidly, pressing on prices. Moreover, the effects of

some of the factors holding down inflation seemed likely to wane, and possibly to reverse,

over time. The latter included the effects of the dollar's appreciation on the prices of imports

and competing domestic products, a possible upturn in energy prices and perhaps other

commodity prices as foreign economies stabilized, and faster increases in the costs of worker

benefits, notably those related to health care. The apparently greater willingness of labor

unions to press for higher wages and other benefits in very tight labor markets might also

intensify upward pressures on labor costs. On balance, while the risks of an overheat- ing

economy and rising price inflation might have faded to some degree, many of the members

continued to emphasize that the Committee could not ignore those risks in its policy

formulation.

In the Committee's discussion of policy for the intermeeting period ahead, all but one of the

members agreed on the desirability of maintaining a steady policy stance. The overall

performance of the economy remained highly satisfactory. While inflation risks were still a

concern, given the high level of output and strong domestic demand, the uncertainties

bearing on the economic outlook remained substantial, and indeed the risks on the downside

seemed to have increased appreciably further. On balance, domestic economic and financial

conditions had not changed sufficiently during the inter- meeting period to warrant an

adjustment to policy. With regard to the current uncertainties in the economic outlook,

members emphasized that the extent and ultimate effects of the apparently spreading fragility

in foreign financial markets and economies on U.S. financial and economic conditions were

unknown. In these circumstances, nearly all the members believed that a cautious

wait-and-see approach to policy seemed appropriate to allow the Committee time to assess

the course of events and the interplay of the divergent forces bearing on the performance of

the economy. In this regard it was noted that while domestic financial conditions remained

generally accommodative, recent developments in foreign exchange and domestic financial

markets had tended on balance to decrease some of the stimulative effects of financial

conditions on aggregate demand in the United States by shifting demand overseas, increasing

somewhat the cost of raising capital, and reducing the financial wealth of households.

However, a few members expressed concern about the potentially inflationary implications

of relatively rapid growth in key monetary aggregates over the past year, though such growth

appeared to have moderated recently. And in the view of one of these members, the trend in

monetary growth along with indications of rising speculative imbalances and excesses in

various markets for financial and nonfinancial assets called for a prompt firming of monetary

policy.

While overall economic conditions had not changed enough in recent weeks to warrant an

adjustment in policy, a majority of the members agreed that the risks to the economic outlook

were now more balanced and called for a shift from asymmetry to symmetry in the

Committee's directive. Such a directive would better represent their view that the

Committee's next policy move could be in either direction depending on developments

abroad and their interaction with a domestic economy that had remained quite strong. Greater

difficulties abroad and associated downward pressures on demand and prices had

substantially diminished the chances of a strengthening of inflation pressures over coming

months and quarters that would require a near-term tightening of policy. Other members

continued to believe that the risks were still tilted to some degree toward rising inflation,

though to a lesser extent than earlier. Labor market developments continued to suggest that

the economy could well be producing beyond its sustainable potential and concrete signs that

inflation pressures would abate had yet to emerge. Accordingly, they still preferred an

asymmetrical directive but could accept symmetry in light of the prevailing uncertainties in

the economic outlook and the expectation, shared by the other members, that policy would

not need to be changed during the intermeeting period ahead.

At the conclusion of the Committee's discussion, all but one of the members were in favor of

retaining a directive that called for maintaining conditions in reserve markets that were

consistent with an unchanged federal funds rate of about 5-1/2 percent. Most also indicated

that they could support a shift to a directive that did not include a presumption about the

likely direction of any adjustments to policy during the intermeeting period. Accordingly, 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, the Committee decided that slightly greater or slightly lesser reserve restraint

would be acceptable during the intermeeting period. The reserve conditions contemplated at

this meeting were expected to be consistent with moderate growth in M2 and M3 over

coming months.

The Federal Reserve Bank of New York was authorized and directed, until instructed

otherwise 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 domestic final demand

has continued to expand at a robust pace, but overall economic activity has been

adversely affected by the strike at General Motors and developments in Asia.

Nonfarm payroll employment continued to expand through July and the civilian

unemployment rate was unchanged at 4.5 percent. Industrial production declined

considerably in June and July; most of the drop over the two months reflected

the GM strike. A decline in total retail sales in July was more than accounted for

by a sharp contraction in spending for motor vehicles. Residential sales and

construction have remained exceptionally strong in recent months. Available

indicators point to continued growth in business capital spending, although

apparently at a more moderate pace than earlier in the year. Business inventory

accumulation slowed sharply in the spring. The nominal deficit on U.S. trade in

goods and services widened substantially further in the second quarter. Trends in

wages and prices have remained stable in recent months.

Most interest rates have fallen slightly on balance since the meeting on June

30-July 1. Share prices in U.S. equity markets have remained volatile and major

indexes have declined appreciably on balance over the intermeeting period. In

foreign exchange markets, the trade-weighted value of the dollar rose somewhat

further over the intermeeting period in relation to other major currencies; in

addition, it was up slightly in terms of an index of the currencies of the

developing countries of Latin America and Asia that are important trading

partners of the United States.

After robust growth in the second quarter, M2 decelerated somewhat and M3

was about unchanged in July. For the year through July, both aggregates rose at

rates well above the Committee's ranges for the year. Expansion of total

domestic nonfinancial debt appears to have moderated somewhat in recent

months after a pickup earlier in the year.

The Federal Open Market Committee seeks monetary and financial conditions

that will foster price stability and promote sustainable growth in output. In

furtherance of these objectives, the Committee reaffirmed at its meeting on June

30-July 1 the ranges it had established in February for growth of M2 and M3 of

1 to 5 percent and 2 to 6 percent respectively, measured from the fourth quarter

of 1997 to the fourth quarter of 1998. The range for growth of total domestic

nonfinancial debt was maintained at 3 to 7 percent for the year. For 1999, the

Committee agreed on a tentative basis to set the same ranges for growth of the

monetary aggregates and debt, measured from the fourth quarter of 1998 to the

fourth quarter of 1999. 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

conditions in reserve markets consistent with maintaining the federal funds rate

at an average of around 5-1/2 percent. In the context of the Committee's long-run

objectives for price stability and sustainable economic growth, and giving

careful consider- ation to economic, financial, and monetary developments, a

slightly higher federal funds rate or a slightly lower federal funds rate would be

acceptable in the inter- meeting period. The contemplated reserve conditions are

expected to be consistent with moderate growth in M2 and M3 over coming

months.

Votes for this action: Messrs. Greenspan, McDonough, Ferguson, Gramlich, Hoenig,

Kelley, Meyer, Ms. Minehan, Mr. Poole, and Ms. Rivlin.

Vote against this action: Mr. Jordan.

Mr. Jordan dissented because he believed that the underlying strength of aggregate demand in

the U.S. economy would remain fundamentally intact, despite economic problems abroad.

The problems in Asia provide a channel for economic imbalances to develop. Exports from

some U.S. manufacturing industries will decline due to softer foreign markets and import

competition. At the same time, domestic demand for imports, housing, and consumer

durables will increase due to favorable interest rate trends. Though U.S. production of goods

and services might slow during the period ahead, it is not yet clear that total demand will

diminish at a comparable pace. At the same time, ample credit provision encourages

speculative lending and excessive consumption. Consequently, continued rapid growth in the

money supply creates the risk that inflation will accelerate and economic imbalances will

become protracted.

TELEPHONE CONFERENCE

On September 21 the Committee held a telephone conference to discuss recent developments

in domestic and international financial markets and their implications for the U.S. economy.

The consultation was held as background for Chairman Greenspan's testimony on September

23 before the Senate Budget Committee.

It was agreed that the next meeting of the Committee would be held on Tuesday, September

29, 1998.

The meeting adjourned at 12:45 p.m.

Donald L. Kohn

Secretary

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