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, December

19, 2000, at 9:00 a.m.

Present:

Mr. Greenspan, Chairman

Mr. McDonough, Vice Chairman

Mr. Broaddus

Mr. Ferguson

Mr. Gramlich

Mr. Guynn

Mr. Jordan

Mr. Kelley

Mr. Meyer

Mr. Parry

Mr. Hoenig, Ms. Minehan, Messrs. Moskow and Poole, Alternate Members of the

Federal Open Market Committee

Messrs. McTeer, Santomero, and Stern, Presidents of the Federal Reserve Banks of

Dallas, Philadelphia and Minneapolis 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

Ms. Johnson, Economist

Mr. Stockton, Economist

Mr. Beebe, Ms. Cumming, Messrs. Goodfriend, Howard, Lindsey, Reinhart,

Simpson, and Sniderman, Associate Economists

Mr. Fisher, Manager, System Open Market Account

Mr. Winn, Assistant to the Board, Office of Board Members, Board of Governors

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

Mr. Madigan, Associate Director, Division of Monetary Affairs, Board of Governors

Messrs. Oliner, Slifman, and Struckmeyer, Associate Directors, Division of Research

and Statistics, Board of Governors

Mr. Whitesell, Assistant Director, Division of Monetary Affairs, Board of Governors

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

Governors

Mr. Lyon, First Vice President, Federal Reserve Bank of Minneapolis

Ms. Browne, Messrs. Hakkio, Hunter, Kos, Ms. Mester, Messrs. Rolnick and

Rosenblum, Senior Vice Presidents, Federal Reserve Banks of Boston, Kansas City,

Chicago, New York, Philadelphia, Minneapolis, and Dallas respectively

Messrs. Cunningham and Gavin, Vice Presidents, Federal Reserve Banks of Atlanta

and St. Louis respectively

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

on November 15, 2000, were approved.

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

market transactions in government securities and federal agency obligations during the

period November 15, 2000, through December 18, 2000. By unanimous vote, the Committee

ratified these transactions.

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

foreign exchange markets. There were no open market operations in foreign currencies for

the System's account in the period since the previous meeting.

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

implementation of monetary policy over the intermeeting period ahead.

The information reviewed at this meeting provided evidence that economic activity, which

had expanded at an appreciably lower pace since midyear, might have slowed further in

recent months. Consumer spending and business purchases of equipment and software had

decelerated markedly after having registered extraordinary gains in the first half of the year.

Housing construction, though still relatively firm, was noticeably below its robust pace of

earlier in the year. With final spending rising at a reduced rate, inventory overhangs had

emerged in a number of goods-producing industries, most visibly in the motor vehicle sector.

Manufacturing production had declined as a consequence, and the rate of expansion in

employment had moderated further. Evidence on core price inflation was mixed; by one

measure, it appeared to be increasing very gradually, in part reflecting the indirect effects of

higher energy costs, but by another it had remained at a relatively subdued level.

Growth in private nonfarm payroll employment moderated a little further on balance in

October and November. Manufacturing payrolls changed little over the two months, and job

gains in the construction, retail trade, and services industries were smaller than those of

earlier in the year. By contrast, the pace of hiring remained relatively brisk in the finance,

insurance, and real estate sectors. With growth in the demand for labor slowing, initial claims

for unemployment insurance continued to trend upward, and the civilian unemployment rate

edged up to 4 percent in November, its average thus far this year.

Industrial production declined slightly in October and November following a moderate thirdquarter increase that was well below the pace of expansion recorded during the first half of

the year. Utilities output surged in November in response to unseasonably cold weather

across much of the country while mining activity changed little. In manufacturing, motor

vehicle output was scaled back further in November, and there also were widespread declines

in industries not directly affected by conditions in the motor vehicle sector. Although the

production of high-tech equipment was still trending up, growth continued to slow from the

extraordinarily rapid increases of earlier in the year. The weakening of factory output in

November was reflected in a further decline in the rate of capacity utilization in

manufacturing to a point somewhat below its long-term average.

Consumer spending appeared to be decelerating noticeably further in the fourth quarter in an

environment of diminished consumer confidence, smaller job gains, and lower stock prices.

Retail sales were down somewhat on balance in October and November after a substantial

third-quarter increase; sales of light vehicles dropped over the two months, and growth in

expenditures on other consumer goods slowed. Outlays on services continued to grow at a

moderate rate through October (latest data).

Against the backdrop of declining interest rates on fixed-rate mortgages, residential building

activity had leveled out since midyear, and October starts remained at the third-quarter level.

Sales of new homes edged down in October, though they were still slightly above their thirdquarter level; sales of existing homes slipped somewhat in October but were near the middle

of their range over the past year. In the multifamily sector, starts moved up slightly further in

October, though they remained appreciably below their elevated level during the first half of

the year. Continuing relatively low vacancy rates for multifamily units suggested that the

prospects for additional construction were favorable.

Business investment in equipment and software increased at a sharply lower, though still

relatively robust, rate in the third quarter, and information on shipments of nondefense capital

goods indicated another moderate increase in business investment in October. Shipments of

communications, computing, and office equipment were well above their third-quarter

averages, and shipments of non-high-tech equipment turned up in October after having fallen

appreciably in earlier months. On the downside, sales of medium and heavy trucks declined

further over October and November, and new orders for such trucks remained weak.

Investment in nonresidential structures continued to rise briskly in October, and all the major

subcategories of construction put in place were up substantially on a year-over-year basis.

Market fundamentals, including rising property values and low vacancy rates, suggested that

further expansion of nonresidential building activity, particularly office construction, was

likely.

Inventory investment on a book-value basis picked up in October from the third-quarter pace,

and the aggregate inventory-sales ratio edged up to its highest level in the past twelve

months. In manufacturing, sizable increases in stocks were led by large accumulations at

producers of industrial and electrical machinery. As a result, the stock-sales ratio for

manufacturing reached its highest level in a year; advances in stock-sales ratios were

widespread among makers of durable goods while ratios remained high for a number of

categories of nondurable products. At the wholesale level, inventory accumulation inched up

from its third-quarter rate, and the sector's inventory-sales ratio was at the top of its range for

the past twelve months. Total retail stocks rose in line with sales in October, and the

inventory-sales ratio for this sector also remained at the upper end of its range over the past

year.

The U.S. trade deficit in goods and services reached a new record high in September and on a

quarterly average basis was up appreciably further in the third quarter. The value of exports

continued to grow strongly in the latest quarter, led by advances in exported machinery and

industrial supplies. The value of imports rose at an even faster rate than exports, with

increases in all major trade categories, especially industrial supplies, semiconductors, and

services. Economic growth in the foreign industrial countries slowed moderately in the third

quarter, and the available information suggested a further reduction in the fourth quarter.

Economic expansion eased in the euro area despite continued strong growth of investment

and exports, as consumer spending appeared to be damped by earlier interest rate increases

and by the drain on spendable income of higher prices for oil and imported goods more

generally. In addition, weak consumption appeared to be an important factor in continued

sluggish economic growth in Japan. Economic activity also decelerated in some developing

countries in the third quarter, with recent indicators suggesting a slowdown in expansion in

many parts of East Asia.

Incoming data indicated that, on balance, price inflation had picked up only a little, if at all.

Consumer prices, as measured by the consumer price index (CPI) on a total and a core basis,

rose mildly in October and November after a sizable September increase, but on a

year-over-year basis core CPI prices increased noticeably more in the twelve months ended

in November than in the previous twelve-month period. When measured by the personal

consumption expenditure (PCE) chain-type index, however, consumer price inflation was

modest in both October (latest data) and the twelve months ended in October, with little

change year over year. At the producer level, core prices edged down on balance in October

and November; moreover, producer inflation eased somewhat on a year-over-year basis,

though the deceleration was more than accounted for by an earlier surge in tobacco prices

during the year ended in November 1999. With regard to labor costs, average hourly earnings

of production or nonsupervisory workers increased in November at the slightly higher rate

recorded in October. For the twelve months ended in October, average hourly earnings rose

somewhat more than in the previous twelve months.

At its meeting on November 15, 2000, the Committee adopted a directive that called for

maintaining conditions in reserve markets consistent with an unchanged federal funds rate of

about 6-1/2 percent. In taking that action, the members noted that despite clear indications of

a more moderate expansion in economic activity, persisting risks of heightened inflation

pressures remained a concern, particularly in the context of a gradual upward trend in core

inflation. In these circumstances, a steady monetary policy was the best means to promote

price stability and sustainable economic expansion. While recognizing that growth was

slowing more than had been anticipated and that developments might be moving in a

direction that would require a shift to a balanced risk statement, members agreed that such a

change would be premature. As a result, they agreed that the statement accompanying the

announcement of their decision should continue to indicate that the risks remained weighted

mainly in the direction of rising inflation.

Open market operations throughout the intermeeting period were directed toward

maintaining the federal funds rate at the Committee's targeted level of 6-1/2 percent, and the

average rate remained close to the intended level. Against the background of deteriorating

conditions in some segments of financial markets, slower economic expansion, and public

comments by Federal Reserve officials about the implications of those developments, market

expectations about the future course of the federal funds rate were revised down appreciably

over the intermeeting period, and market interest rates on Treasury and private

investment-grade securities declined somewhat over the intermeeting interval. The weaker

outlook for economic growth, coupled with growing market concerns about corporate

earnings, weighed down equity prices and boosted risk spreads on lower-rated

investment-grade and high-yield bonds. Equity prices were quite volatile during the

intermeeting period and, reflecting numerous dour reports on corporate earnings and

incoming information indicating slower growth in economic activity in the United States,

broad indexes of stock market prices dropped considerably on balance over the intermeeting

period.

In foreign exchange markets, the trade-weighted value of the dollar edged lower on balance

over the intermeeting interval in terms of the currencies of a broad group of U.S. trading

partners. Among the major foreign currencies, the dollar fell moderately against the euro but

moved up to a roughly comparable extent in terms of the yen. The dollar's decline against the

euro reflected a growing perception that economic expansion in the euro area would cool

comparatively less than in the United States. Correspondingly, the slide of the yen seemed to

be related to weak economic data, stagnant business sentiment, and political uncertainties in

Japan. The dollar posted a small gain against an index of the currencies of other important

trading partners, largely reflecting weaker financial conditions in some emerging economies.

The broad monetary aggregates decelerated further in November. The slowing growth of M2

in October and November following strong expansion in August and September apparently

reflected the moderating rates of increase in nominal income and spending in recent months

and perhaps some persisting effects of the rise in opportunity costs earlier in the year. M3

growth slowed less than that of M2 in November, in part because of stepped-up issuance of

large time deposits as banks reduced their reliance on funding from overseas offices. The

growth of domestic nonfinancial debt slowed in October (latest data), reflecting a larger

further paydown of federal debt and a reduced pace of private borrowing.

The staff forecast prepared for this meeting suggested that the economic expansion had

slowed considerably, to a rate somewhat below the staff's current estimate of the growth of

the economy's potential output, but that it would gradually gain strength over the next two

years. The forecast anticipated that the expansion of domestic final demand would be held

back to some extent by the diminishing influence of the wealth effects associated with past

outsized gains in equity prices but also by the relatively high interest rates and the somewhat

stringent credit terms and conditions on some types of loans by financial institutions. As a

result, growth of spending on consumer durables was expected to be appreciably below that

in recent quarters, and housing demand to be slightly weaker. Business fixed investment,

notably outlays for equipment and software, was projected to remain relatively robust;

growth abroad would support the expansion of U.S. exports; and fiscal policy was assumed

to continue its moderate expansionary trend. Core price inflation was projected to rise only

slightly over the forecast horizon, partly as a result of higher import prices but also as a

consequence of some further increases in nominal labor compensation gains that would not

be fully offset by the expected growth of productivity.

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

commented that recent statistical and anecdotal information provided clear indications of

significant slowing in the expansion of business activity and also pointed to appreciable

erosion in business and consumer confidence. The deceleration in the economy had occurred

from an unsustainably high growth rate in the first half of the year, and the resulting

containment in demand pressures on resources already had improved the outlook for

inflation. The question at this juncture was whether the expansion would remain near its

recent pace or continue to moderate. While the former still seemed to be the most likely

outcome, the very recent information on labor markets, sales and production, business and

consumer confidence, developments in financial markets, and growth in foreign economies

suggested that the risks to the economy had shifted rapidly and perceptibly to the downside.

Concerning the outlook for inflation, members commented that the upside risks clearly had

diminished in the wake of recent developments and that, with pressures on resources likely to

abate at least a little, subdued inflation was a reasonable prospect.

Weakening trends in production and employment were most apparent in the manufacturing

sector. There were widespread anecdotal reports of production cutbacks, notably in industries

related to motor vehicles, and of associated declines in manufacturing employment.

However, many of the factory workers losing their jobs were readily finding employment

elsewhere in what generally continued to be characterized as very tight labor markets across

the country. The softening in manufacturing reflected weak sales and prompt efforts to limit

unwanted buildups in inventories. Even so, business contacts reported currently undesired

levels of inventories in a range of industries, not only in motor vehicles. In the aggregate,

cutbacks in inventory investment or runoffs of existing inventories accounted for a

significant part of the recent moderation in the growth of the overall economy.

The slowing in the growth of consumer spending that had prompted much of the backup in

inventories was evident from a wide variety of information, including anecdotal reports from

various parts of the country. Consumer sentiment seemed to have deteriorated appreciably in

recent weeks, though from a very high level, and retail sales were widely indicated to have

softened after a promising spurt early in the holiday season. Factors cited to account for the

relatively sudden emergence of this weakness, and also as possible harbingers of

developments in coming quarters, were the negative wealth effects of further declines in

stock market prices, the impact of very high energy costs on disposable incomes, and some

increase in caution about the outlook for employment opportunities and incomes. The extent

to which such developments would persist and perhaps foster more aggressive retrenchment

in consumer spending clearly was uncertain, but the members nonetheless anticipated that

over time underlying employment and income trends would be consistent with further

expansion in consumer expenditures, though at a pace well below that of earlier in the year.

Growth in business expenditures for equipment and software had moderated substantially in

recent months from very high rates of increase over an extended period. The slowdown

reflected a mix of interrelated developments including flagging growth in demand and

tightening financial conditions in the form of declining equity prices and stricter credit terms

for many business borrowers. The re-evaluation of prospects was most pronounced in the

high-tech industries. The profitability of using and producing such software and equipment

had been overestimated to a degree, and disappointing sales and a better appreciation of risks

had resulted in much slower growth in production of such equipment and sharp deterioration

in the equity prices of high-tech companies. At the same time, nonresidential construction

activity appeared to have been well maintained in many parts of the country, though there

were reports of softening in some regions and of some reductions or delays in planned

projects. Against this background, risks of further retrenchment in capital spending persisted,

but to date there was no evidence to suggest that the underlying pace of advances in

technology and related productivity growth had abated. Over time, further increases in

productivity would undergird continuing growth in demand for high-tech equipment. In the

nonresidential construction area, members noted that high occupancy rates and high rents

were supportive elements in the construction outlook.

With regard to the prospects for housing activity, members provided anecdotal reports of

some softening in a number of regions, though homebuilding was holding up well in others.

Housing demand was, of course, responding to many of the same factors that were affecting

consumer spending, including the negative wealth effects of declining stock market prices.

On the positive side, further growth in incomes and declines in mortgage rates were key

elements of underlying strength for the housing sector. On balance, housing construction at a

pace near current levels appeared to be a reasonable prospect in association with forecasts of

moderate growth in the overall economy.

Growth in foreign economic activity likely would continue to foster expansion in U.S.

exports, though members noted that there were signs of softer business conditions in some

foreign nations. In addition, members referred to some anecdotal evidence of increasing

concern among business contacts about future prospects for exports of manufactured goods.

On the other hand, any depreciation in the foreign exchange value of the dollar as the

economy slowed would help to bolster exports.

Against the backdrop of slowing economic growth, core inflation had remained quiescent.

Views regarding the outlook for inflation were somewhat mixed, though all the members

agreed that the risks of higher inflation had diminished materially. Nonetheless, some

members noted that while recent anecdotal reports pointed to a modest reduction in labor

market strains in some areas and industries, labor markets in general were still very tight and

likely would remain taut relative to historical experience. In such circumstances, if structural

productivity growth leveled out, worker efforts to catch up to past increases in productivity

could put pressures on labor compensation costs. The latter could well be augmented by

sharply rising medical costs and by attempts to protect the purchasing power of wages from

the erosion caused by the rise in energy prices. Further depreciation of the dollar in relation

to major foreign currencies would add to import prices and domestic inflation pressures. But

there were also a number of reasons for optimism about the outlook for consumer prices over

coming quarters. Growth in economic activity at a pace somewhat below that of the

economy's output potential would lessen pressures on labor and other resources from levels

that had, in the past few years, been associated with at most a small uptick in core inflation.

Indications that rapid growth in structural productivity would persist and widespread reports

that strong competitive pressures in most markets continued to inhibit business efforts to

increase prices in the face of rising costs also were favorable factors in the outlook. Further

declines in oil prices, as evidenced by quotations in futures markets, would if realized have

effects not only on so-called headline inflation but would help hold down core prices over

time. Despite previous increases in headline inflation, survey and other measures of inflation

expectations continued to suggest that long-run inflation expectations had not risen and might

even have fallen a bit of late as the economy softened.

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

indicated that they could support an unchanged policy stance, consistent with a federal funds

rate averaging about 6-1/2 percent. However, they also endorsed a proposal calling for a shift

in the balance of risks statement to be issued after this meeting to express the view that most

members believed the risks were now weighted toward conditions that could generate

economic weakness in the foreseeable future. In their evaluation of the appropriate policy for

these changing circumstances, the members agreed that the critical issue was whether the

expansion would stabilize near its recent growth rate or was continuing to slow. In the view

of almost all the members, the currently available information bearing on this issue was not

sufficient to warrant an easing at this point. Much of the usual aggregative data on spending

and employment, although to be sure available only with a lag, continued to suggest

moderate economic expansion. The information pointing to further weakness was very recent

and to an important extent anecdotal. As a consequence, most of the members were

persuaded that a prudent policy course would be to await further confirmation of a

weakening expansion before easing, particularly in light of the high level of resource

utilization and the experience of recent years when several lulls in the growth of the economy

had been followed by a resumption of very robust economic expansion. Additional evidence

of slowing economic growth might well materialize in the weeks immediately ahead--from

the regular aggregated monthly data releases, but also from weekly readings on the labor

market and reports from businesses on the strength of sales and production--and the members

agreed that the Committee should be prepared to respond promptly to indications of further

weakness in the economy. Those few members who expressed a preference for easing at this

meeting believed that, with unit labor costs and inflation expectations contained, enough

evidence of further weakness already existed to warrant an immediate action. Nonetheless,

they could accept a delay in light of prevailing uncertainties about the prospective

performance of the economy and the intention of the Committee to act promptly in coming

weeks, including the possibility of an easing move early in the intermeeting period, should

confirming information on weakening trends in the economy emerge.

With regard to the consensus in favor of moving from an assessment of risks weighted

toward rising inflation to one that was weighted toward economic weakness, with no

intermediate issuance of a balanced risks assessment, some members observed that such a

change was likely to be viewed as a relatively rapid shift by some observers. The revised

statement of risks, even though it would not be associated with an easing move, could

strengthen expectations regarding future monetary policy easing to an extent that was

difficult to predict and could generate sizable reactions in financial markets. At the same

time, it might raise questions about why the Committee did not alter the stance of policy.

Nonetheless, the Committee's reasons for not easing today were deemed persuasive by most

members, while shifting its statement about economic risks seemed clearly justified by recent

developments. In one view, even though the risks of a weakening economy had increased, a

statement of balanced risks would be preferable because further moderation in the expansion

might well fail to materialize.

At the conclusion of this discussion, the Committee voted to authorize and direct the Federal

Reserve Bank of New York, until it was instructed otherwise, to execute transactions in the

System Account in accordance with the following domestic policy directive:

The Federal Open Market Committee seeks monetary and financial conditions

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

further its long-run objectives, the Committee in the immediate future seeks

conditions in reserve markets consistent with maintaining the federal funds rate

at an average of around 6-1/2 percent.

The vote also encompassed approval of the sentence below for inclusion in the press

statement to be released shortly after the meeting:

Against the background of its long-run goals of price stability and sustainable

economic growth and of the information currently available, the Committee

believes that the risks are weighted mainly toward conditions that may generate

economic weakness in the foreseeable future.

Votes for this action: Messrs. Greenspan, McDonough, Broaddus, Ferguson,

Gramlich, Guynn, Jordan, Kelley, Meyer, and Parry.

Votes against this action: None.

This meeting adjourned at 1:35 p.m. with the understanding that the next regularly scheduled

meeting of the Committee would be held on Tuesday-Wednesday, January 30-31, 2001.

Telephone Conference Meeting

A telephone conference meeting was held on January 3, 2001, for the purpose of considering

a policy easing action. In keeping with the Committee's Rules of Organization, the members

at the start of the meeting unanimously re-elected Alan Greenspan as Chairman of the

Federal Open Market Committee and William J. McDonough as Vice Chairman. Their terms

of office were extended for one year until the first meeting of the Committee after December

31, 2001. By unanimous vote, the Federal Reserve Bank of New York was selected to

execute transactions for the System Open Market Account until the adjournment of the first

meeting of the Committee after December 31, 2001.

At its meeting on December 19, 2000, the Committee had contemplated the possibility that

ongoing economic and financial developments might warrant a reassessment of the stance of

monetary policy prior to the next scheduled meeting in late January. Information that had

become available since the December meeting tended to confirm that the economic

expansion had continued to weaken. The manufacturing sector was especially soft, reflecting

apparent efforts in a number of industries to readjust inventories that were now deemed to be

too high, notably those related to motor vehicles. Retail sales were appreciably below

business expectations for the holiday season despite some pickup in the latter half of

December, apparently largely induced by price discounting, and sales of motor vehicles

evidenced significant further weakness as the month progressed. Business confidence

appeared to have deteriorated further since the December meeting amid widespread reports

of reductions in planned production and capital spending. Elevated energy costs were

continuing to drain consumer purchasing power and were adding to the costs of many

business firms, with adverse effects on profits and stock market valuations. Interacting with

these developments were forecasts of further declines in business profits over coming

quarters. On the more positive side, housing activity appeared to be responding to lower

mortgage interest rates, and on the whole nonresidential construction activity seemed to be

reasonably well maintained. Moreover, while the expansion had weakened and economic

activity might remain soft in the near term, the longer-term outlook for reasonably sustained

economic expansion, supported by easier financial conditions and the response of investment

and consumption to rising productivity and living standards, was still quite good. Inflation

expectations appeared to be declining, with businesses continuing to encounter marked and

even increased resistance to their efforts to raise prices. On balance, the information already

in hand indicated that the expansion clearly was weakening and by more than had been

anticipated. In the circumstances, prompt and forceful policy action sooner and larger than

expected by financial markets seemed called for.

Against this background, all the members supported a proposal for an easing of reserve

conditions consistent with a reduction of 50 basis points in the federal funds rate to a level of

6 percent. The Committee voted to authorize and direct the Federal Reserve Bank of New

York, until it was instructed otherwise, to execute transactions in the System Account in

accordance with the following domestic policy directive:

The Federal Open Market Committee seeks monetary and financial conditions

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

further its long-run objectives, the Committee in the immediate future seeks

conditions in reserve markets consistent with a reduction in the federal funds rate

to an average of around 6 percent.

The vote encompassed approval of the sentence below for inclusion in the press statement to

be released shortly after the meeting:

Against the background of its long-run goals of price stability and sustainable

economic growth and of the information currently available, the Committee

believes that the risks are weighted mainly toward conditions that may generate

economic weakness in the foreseeable future.

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

Hoenig, Kelley, Meyer, Minehan, Moskow, and Poole.

Votes against this action: None.

Chairman Greenspan indicated that shortly after this meeting the Board of Governors would

consider pending requests by several Federal Reserve Banks to reduce the discount rate by 25

basis points. At the time of this conference call meeting, no pending requests for a 50 basis

point reduction were outstanding, but the press release would indicate that the Board would

be prepared to consider requests for further reductions of 25 basis points if they were

received.

Donald L. Kohn

Secretary

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