August 24, 1982 FOMC Record of Policy Actions

FOMC minutes

In the short run, the Committee continues to seek behavior of reserve aggregates consistent with growth of Ml and M2 from June to September at annual rates of about 5 percent and about 9 percent 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. 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 7 to 11 percent. Votes for this action: Messrs. Volcker, Solomon, Balles, Black, Ford, Mrs. Horn, Messrs. Martin, Partee, Rice, and Mrs. Teeters. Vote against this action: Mr. Wallich. Absent and not voting: Mr. Gramley. Mr. Wallich dissented from this action because he favored an approach to operations early in the period that would lessen the chances of short-term interest rates remaining below the prevailing discount rate or falling further below it. He was concerned that such interest rate behavior would tend to accelerate monetary expansion and that the necessary restraint of reserve growth to curb such expansion might lead to a sizable rebound in short-term rates with adverse implications for business and consumer confidence. 2. Authorization for foreign currency operations At this meeting Committee members were apprised of the status of ongoing discussions with the Government of Mexico regarding short-term financ ing arrangements to support Mexico's efforts to strengthen its economic and financial position. At its meeting on June 30 - July 1, the Committee

had agreed, in response to a request by officials of the Bank of Mexico, that it would stand ready to provide to the Bank of Mexico up to the full $700 million available under the Federal Reserve System's existing swap arrangement with that Bank. Subsequently, on August 4, 1982, the Bank of Mexico, which had drawn on its swap line on an overnight basis on a few occasions in recent months, drew $700 million for a period of three months. At the time of this meeting, negotiations were under way among Mexico, the U.S. Treasury, major central banks, and other lenders to provide multilateral financial support to Mexico. The purpose of the support was to effect an orderly transition to an economic stabilization program that the Government of Mexico had announced was being developed. The Committee author ized Federal Reserve participation in the proposed multilateral financing package through the temporary establishment of a special swap arrangement of $325 million with the Bank of Mexico in addition to the regular arrangement of $700 million. Accordingly, paragraph 2 of the Committee's authorization for foreign currency operations was amended, effective August 28, 1982, for the period through August 23, 1983, to read as follows: 2. The Federal Open Market Committee directs the Federal Reserve Bank of New York to maintain reciprocal currency arrangements ("swap" arrangements) for the System Open Market Account for periods up to a maximum of 12 months with the following foreign banks, which are among those designated by the Board of Governors of the Federal Reserve System under Section 214.5 of Regulation N Relations with Foreign Banks and Bankers, and with the approval of the Committee to renew such arrangements on maturity:

Amount of arrangement (millions of dollars Foreign Bank equivalent) Austrian National Bank 250 National Bank of Belgium 1,000 Bank of Canada 2,000 National Bank of Denmark 250 Bank of England 3,000 Bank of France 2,000 German Federal Bank 6,000 Bank of Italy 3,000 Bank of Japan 5,000 Bank of Mexico: Regular 700 Special 325 Netherlands Bank 500 Bank of Norway 250 Bank of Sweden 300 Swiss National Bank 4,000 Bank for International Settlements: Dollars against Swiss francs 600 Dollars against authorized European currencies other than Swiss francs 1,250 Any changes in the terms of existing swap arrangements, and the proposed terms of any new arrangements that may be authorized, shall be referred for review and approval to the Committee. Votes for this action: Messrs. Volcker, Solomon, Balles, Black, Ford, Mrs. Horn, Messrs. Martin, Partee, Rice, Mrs. Teeters, and Mr. Wallich. Votes against this action: None. Absent and not voting: Mr. Gramley. On August 30, 1982, the U.S. Treasury and the Federal Reserve announced that they were participating with central banks of other Group of Ten countries, Spain, and Switzerland, under the aegis of the Bank for Inter national Settlements, in making available to the Bank of Mexico short-term

financing totaling $1.85 billion. The Treasury would provide $600 million through the Exchange Stabilization Fund, in conjunction with the $325 million that the Federal Reserve was making available through its additional swap arrangement. The multilateral financing program provided that drawings by Mexico would be made in line with progress toward agreement between the Mexican Government and the International Monetary Fund (IMF) on an economic adjustment program that will permit Mexico to qualify for drawings under the IMF's Extended Fund Facility.