March 26, 1985 FOMC Record of Policy Actions

FOMC minutes

Growth in M1 accelerated in February, following relatively rapid expansion in other recent months, but information available through mid-March indicates a considerable slowing. Growth in the broader aggregates moderated in February and appears to be slowing further in March. In January and February expansion in total domestic nonfinancial debt remained relatively rapid, though somewhat below the pace of previous months. Most interest rates have risen somewhat since the February meeting of the Committee. The Federal Open Market Committee seeks to foster monetary and financial conditions that will help to reduce inflation further, promote growth in output on a sustainable basis, and contribute to an improved pattern of international transactions. In furtherance of these objectives the Committee agreed at its meeting in February to establish ranges for monetary growth of 4 to 7 percent for M1, 6 to 9 percent for M2, and 6 to 9-1/2 percent for M3 for the period from the fourth quarter of 1984 to the fourth quarter of 1985. The associated range for total domestic nonfinancial debt was set at 9 to 12 percent for the year 1985. The Committee agreed that growth in the monetary aggre gates in the upper part of their ranges for 1985 may be appropriate, depending on developments with respect to velocity and provided that inflationary pressures remain subdued. The Committee understood that policy implementation would require continuing appraisal of the relationships not only among the various measures of money and credit but also between those aggregates and nominal GNP, including evaluation of conditions in domestic credit and foreign exchange markets. In the implementation of policy for the immediate future, taking account of the progress against inflation, uncertainties in the business outlook, and the exchange value of the dollar, the Committee seeks to maintain the existing degree of pressure on reserve positions. This action is expected to be consistent with growth in M1, M2, and M3 at annual rates of around 6, 7, and 8 percent respectively during the period from March to June. Somewhat lesser reserve restraint might be

event of substantially slower growth acceptable in the monetary aggregates while somewhat greater of the might be acceptable in the event of sub restraint higher growth. In either case such a stantially be considered in the context of appraisals change would strength of the business expansion, progress of the inflation, and conditions in domestic credit against and foreign exchange markets. The Chairman may call consultation if it appears to the for Committee Manager for Domestic Operations that pursuit of the objectives and related reserve paths during monetary before the next meeting is likely to be the period associated with a federal funds rate persistently outside a range of 6 to 10 percent. Votes for this action: Messrs. Volcker, Corrigan, Balles, Black, Forrestal, Gramley, Keehn, Martin, Partee, Rice, Ms. Seger, and Mr. Wallich. Votes against this action: None. 2. Review of continuing authorizations The Committee followed its customary practice of reviewing all of its continuing authorizations and directives at this first regular meeting of the Federal Open Market Committee following the election of new members from the Federal Reserve Banks to serve for the year beginning March 1, 1985. The Committee reaffirmed the authorization for foreign currency operations, the foreign currency directive, and the procedural instructions with respect to foreign currency operations in the forms in which they were currently outstanding. 1/ 1/ Prior to this meeting, on March 6, 1985, certain other routine author izations of the Committee, including various resolutions, rules, and procedures, and the agreement with the U.S. Treasury to warehouse foreign currencies, were distributed to the Committee members and Reserve Bank Presidents for their review. It was agreed that these authorizations would continue to stand as previously adopted and would not be placed on the agenda for consideration at this meeting unless any member so requested, and no such requests were received.

Votes for these actions: Messrs. Volcker, Corrigan, Balles, Black, Forrestal, Gramley, Keehn, Martin, Partee, Rice, Ms. Seger, and Mr. Wallich. Votes against these actions: None. 3. Authorization for Domestic Open Market Operations On the recommendation of the Manager for Domestic Operations, System Open Market Account, the Committee amended paragraph 1(a) of the authorization for domestic open market operations to raise from $4 billion to $6 billion the limit on intermeeting changes in System account holdings of U.S. government and federal agency securities. The Manager noted that the Committee had found it necessary to authorize temporary increases in the limit with greater frequency, primarily because of the increased size of the net variation, especially from seasonal influences, in market factors such as the Treasury balance that affect reserves. In 1984 such temporary increases had been authorized on six occasions, more than in any other recent year. A permanent increase in the limit to $6 billion would reduce the number of occasions requiring special Committee action, while still calling needs for particularly large changes to the Committee's attention. The Committee concurred in the Manager's view that such an increase would be appropriate. Accordingly, effective immediately, paragraph 1(a) of the authorization for domestic open market operations was amended to read as follows:

Committee authorizes and directs the 1. The Federal Open Market Bank of New York, to the extent necessary to carry out Federal Reserve directive adopted at a meeting of the the most recent domestic policy Committee: securities, including securi (a) To buy or sell U. S. Government Financing Bank, and securities that are direct ob ties of the Federal ligations of, or fully guaranteed as to principal and interest by, any the United States in the open market, from or to securities agency of dealers and foreign and international accounts maintained at the Federal Reserve Bank of New York, on a cash, regular, or deferred delivery basis, for the System Open Market Account at market prices, and, for such Account, to exchange maturing U. S. Government and Federal agency securities with the Treasury or the individual agencies or to allow them to mature without replacement; provided that the aggregate amount of U. S. Government and Federal agency securities held in such Account (including forward commitments) at the close of business on the day of a meeting of the Committee at which action is taken with respect to a domestic policy directive shall not be increased or decreased by more than $6.0 billion during the period commencing with the opening of business on the day following such meeting and ending with the close of business on the day of the next such meeting; Votes for this action: Messrs. Volcker, Corrigan, Balles, Black, Forrestal, Gramley, Keehn, Martin, Partee, Rice, Ms. Seger, and Mr. Wallich. Votes against this action: None. Subsequently, on April 15, 1985, the Manager advised that projections indicated very large needs for reserves during the current intermeeting period, mainly because of sharply increasing Treasury balances in April. Accordingly, effective April 16, 1985, the Committee approved the recommendation of the Manager that the limit in paragraph 1(a) be raised from $6 billion to $9 billion for the intermeeting period ending May 21, 1985. Votes for this action: Messrs. Volcker, Balles, Black, Forrestal, Gramley, Keehn, Martin, Ms. Seger and Mr. Timlen. Votes against this action: None. (Absent and not voting: Messrs. Corrigan, Partee, Rice and Wallich. Mr. Timlen voted as alternate for Mr. Corrigan.)