November 16, 1982 FOMC Record of Policy Actions

FOMC minutes

be acceptable and desirable if such part of the ranges for 1982, would upper rates. On the other hand, some were associated with declining interest growth would be tolerated if continuing economic and financial what more rapid growth should appear to be reflected in exceptional liquidity demands. uncertainties the federal funds rate, which provides a mechanism The intermeeting range for of the Committee, was set at 6 to 10 percent. for initiating further consultation The following domestic policy directive was issued to the Federal Reserve Bank of New York: The information reviewed at this meeting suggests little change in real GNP in the fourth quarter and continuation of the rise in prices at a much less rapid pace than in 1981. In October the nominal value of retail sales edged up, but was little higher than in the second and third quarters; industrial production and nonfarm payroll employment continued to decline; and the unemployment rate rose another 0.3 percentage point to 10.4 percent. Initial claims for unemployment insurance have remained exceptionally high. In September and the third quarter as a whole, housing starts had strengthened. In recent months the advance in the index of average hourly earnings has remained consider ably less rapid than during 1981. The weighted average value of the dollar against major foreign currencies continued to appreciate from the end of September to mid-November. The U.S. merchandise trade deficit in the third quarter was more than double the rate in the first two quarters of the year. Growth of M1, already rapid in August and September, accelerated sharply in October in association with the maturing of a large volume of all savers certificates. Growth of M2 and M3 picked up from sluggish rates in September, but remained below the brisk pace of earlier in the year. Most short-term market interest rates have declined on balance since early October, after a reversal in September, and bond yields and mortgage rates have declined further. On October 8 the Federal Reserve

announced a reduction in the discount rate from 10 percent to 9-1/2 percent. Quality spreads in the money markets, which had widened, have narrowed in recent weeks as interest rates have declined, and common stock prices have advanced sharply. 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. In July, the Committee agreed that these objectives would be furthered by reaffirming the monetary growth ranges for the period from the fourth quarter of 1981 to the fourth quarter of 1982 that it had set at the February meeting. These ranges were 2-1/2 to 5-1/2 percent for M1, 6 to 9 percent for M2, and 6-1/2 to 9-1/2 percent for M3. The associated range for bank credit was 6 to 9 percent. 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 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. The Committee also indicated that it was tentatively planning to continue the current ranges for 1983 but that it would review that decision carefully in the light of developments over the remainder of 1982. Specification of the behavior of M1 over the balance of the year remains subject to substantial uncertainty because of special circumstances in connection with the reinvestment of funds from maturing all savers certifi cates and the public's response to the new account directly competitive with money market funds mandated by recent legislation. The difficulties in interpreta tion of M1 continue to suggest that much less than usual weight be placed on movements in that aggregate during the current quarter. In all the circumstances, the Committee seeks to maintain expansion in bank reserves needed for an orderly and sustained flow of money and credit, consistent with growth of M2 (and M3) of around 9-1/2 percent at an annual rate from September to December. Somewhat slower growth, bringing those aggregates around the upper part of the ranges set for the year, would be acceptable and desirable declining interest rates. Should economic in a context of

lead to exceptional liquidity and financial uncertainties somewhat more rapid growth in the broader aggre demands, be tolerated. The Chairman may call for gates would it appears to the Manager for Committee consultation if Operations that pursuit of the monetary objectives Domestic paths during the period before the next and related reserve likely to be associated with a federal funds meeting is outside a range of 6 to 10 percent. rate persistently Votes for this action: Messrs. Volcker, Solomon, Balles, Black, Gramley, Mrs. Horn, Messrs. Martin, Partee, Rice, Mrs. Teeters, and Mr. Wallich. Vote against this action: Mr. Ford. from this action because he believed that it Mr. Ford dissented of complementing very large budget deficits with substantial ran the risk supply of money. In his view the result would be an increases in the combination of policies that could rekindle inflation overly stimulative and drive up interest rates during 1983. 2. Authorization for domestic open market operations At this meeting the Committee voted to increase from $3 billion the limit on changes between Committee meetings in System to $4 billion holdings of U.S. government and federal agency securities specified Account in paragraph 1(a) of the authorization for domestic open market operations, effective immediately, for the period from October 6, 1982 through the close of business on November 16, 1982. Votes for this action: Messrs. Volcker, Solomon, Balles, Black, Ford, Gramley, Mrs. Horn, Messrs. Martin, Partee, Rice, Mrs. Teeters, and Mr. Wallich. Votes against this action: None.

This action was taken on the recommendation of the Manager for Domestic Operations. The Manager had advised that substantial net purchases of securities in recent weeks had reduced to about $500 million the leeway for further purchases during the intermeeting period ending with the close of business today. Purchases of securities in excess of that leeway seemed desirable during the course of today's operations to provide reserves to meet increased seasonal needs.