June 30–July 1, 1982 FOMC Record of Policy Actions

FOMC minutes

6/30-7/1/82 -15- The Federal Open Market Committee seeks to foster monetary and financial conditions that will help to reduce inflation, promote a resumption of growth in output on a sustainable basis, and contribute to a sustainable pattern of international transactions. At its meeting in early February, the Committee agreed that its objectives would be furthered by growth of Ml, M2, and M3 from the fourth quarter of 1981 to the fourth quarter of 1982 within ranges of 2-1/2 to 5-1/2 percent, 6 to 9 percent, and 6-1/2 to 9-1/2 percent respectively. The associated range for bank credit was 6 to 9 percent. These ranges were under review at this meeting. In the short run, the Committee seeks behavior of reserve aggregates consistent with growth of M1 and M2 from June to September at annual rates of about 5 percent and about 9 per cent respectively. Somewhat more rapid growth would be acceptable depending on evidence that economic and financial uncertainties are leading to exceptional liquidity demands and changes in financial asset holdings. It was also noted that seasonal uncertainties, together with increased social security payments and the initial impact of the tax cut on cash balances, might lead to a temporary bulge in the monetary aggregates, particularly M1. The Chairman may call for Committee consultation if it appears to the Manager for Domestic Operations that pursuit of the monetary objectives and related reserve paths during the period before the next meeting is likely to be associated with a federal funds rate persistently outside a range of 10 to 15 percent. Votes for this action: Messrs. Volcker, Solomon, Balles, Gramley, Martin, Partee, Rice, and Keehn. Votes against this action: Messrs. Black, Ford, Mrs. Teeters, and Mr. Wallich. Mr. Keehn voted as alternate for Mrs. Horn. Messrs. Black, Ford, and Wallich dissented from this action because they favored a policy for the period immediately ahead that was firmly directed toward bringing growth of M1 down to its range for 1982 by the end of the year. They were concerned that accommodation of rela tively rapid growth over the summer months might jeopardize achievement of the monetary objectives for the year and thus would risk exacerbating

6/30-7/1/82 -16- inflationary expectations. Accordingly, they believed that tendencies toward rapid monetary expansion in the months immediately ahead should be met by greater pressures on bank reserve positions and in the money market. Mrs. Teeters dissented from this action because she favored specification of somewhat higher rates for monetary growth during the third quarter along with an approach to operations early in the period that would clearly signal an easing in policy. In her opinion, policy at this point should be directed toward exerting downward pressure on short-term interest rates in order to promote recovery in output and employment. At a telephone meeting on July 15, the Committee concluded its review of the ranges for growth of the monetary aggregates in 1982 and the tentative ranges for 1983 and took the following actions. The Committee reaffirmed the following ranges for growth of the monetary aggregates over the year from the fourth quarter of 1981 to the fourth quarter of 1982 that it had adopted in early February: for M1, 2-1/2 to 5-1/2 percent; for M2, 6 to 9 percent; and for M3, 6-1/2 to 9-1/2 percent. The associated range for bank credit was 6 to 9 percent. At the same time, the Committee agreed that growth in the mone tary and credit aggregates around the top of the indicated ranges would be acceptable in the light of the relatively low base period for the M1 target and other factors, and that it would tolerate for some period of time growth somewhat above the target range should unusual precautionary demands for money and liquidity be evident in the light of current economic uncertainties. Votes for this action: Messrs. Volcker, Solomon, Balles, Black, Ford, Mrs. Horn, Messrs. Martin and Partee. Vote against this action: Mrs. Teeters. Absent and not voting: Messrs. Gramley, Rice, and Wallich. Mrs. Teeters dissented from this action because she favored an explicit statement that growth of M1 above the upper end of the Committee's

6/30-7/1/82 -17 range for 1982 by 1 percentage point, or even as much as 1-1/2 percentage points, might be acceptable. In her opinion, it was important to indicate the acceptable degree of growth of M1 above the range in order to foster market behavior that would lower interest rates and enhance the prospects for sustaining recovery in output and employment. The Committee indicated that for 1983 it was tentatively planning to continue the current ranges for 1982, but would review that decision carefully in the light of developments over the remainder of 1982. Votes for this action: Messrs. Volcker, Solomon, Balles, Black, Ford, Mrs. Horn, Messrs. Martin, Partee, and Mrs. Teeters. Votes against this action: None. Absent and not voting: Messrs. Gramley, Rice, and Wallich. Shortly afterwards, Messrs. Gramley, Rice, and Wallich, who had been unable to attend the meeting on July 15 but who had been present for the main discussion of the longer-run ranges for monetary growth held at the meeting on June 30 - July 1, associated themselves with the Committee in its actions with respect to the ranges for both 1982 and 1983. Following the Committee's actions on July 15, the next to last paragraph of the domestic policy directive adopted at its meeting on June 30-July 1 read as follows: The Federal Open Market Committee seeks to foster monetary and financial conditions that will help to reduce inflation, promote a resumption of growth in output on a sustainable basis, and contribute to a sustainable pattern of international transactions. At its meeting in early February, the Committee had agreed that its objectives would be furthered by growth of M1, M2, and M3 from the fourth quarter of 1981 to the fourth quarter of 1982 within ranges of 2-1/2 to 5-1/2 percent, 6 to 9 percent, and 6-1/2 to 9-1/2 percent respectively. The associated range for was 6 to 9 percent. The Committee began bank credit

6/30-7/1/82 -18 a review of these ranges at its meeting on June 30 July 1, and at a meeting on July 15, it reaffirmed the targets for the year set in February. At the same time the Committee agreed that growth in the monetary and credit aggregates around the top of the indicated ranges would be acceptable in the light of the rela tively low base period for the M1 target and other factors, and that it would tolerate for some period of time growth somewhat above the target range should unusual precautionary demands for money and liquidity be evident in the light of current economic uncertain ties. The Committee also indicated it was tentatively planning to continue the current ranges for 1983, but would review that decision carefully in the light of developments over the remainder of 1982.