March 29, 1988 FOMC Record of Policy Actions

FOMC minutes

was given during the discussion tax payments. Some consideration to mid-April range for the federal funds rate, to an upward adjustment in the intermeeting into the upper half of the funds could trade well especially since federal made at today's meeting. However, Committee's range following the decision increasing the range under current circumstances the members concluded that greater move towards restraint than the could be misread as implying a Committee intended. Committee's discussion, all but one of the At the conclusion of the acceptance of a directive that called for a slight members indicated their degree of pressure on reserve positions. With regard to increase in the procedures, a majority continued to endorse the the Committee's operating view that some flexibility might be desirable in the day-to-day conduct of open market operations in light of the still somewhat unsettled conditions in financial markets and the uncertainties surrounding the economic outlook. Taking account of conditions in financial markets, the members indicated that somewhat greater or somewhat lesser reserve restraint would be acceptable depending on the strength of the business expansion, indications of inflation, the performance of the dollar in foreign exchange markets, and the behavior of the monetary aggregates. The reserve conditions contemplated by the Committee were expected to be consistent with growth in both M2 and M3 over the period from March through June at annual rates of about 6 to 7 percent. As at previous meetings, the Committee decided not to indicate any expectation regarding the growth of Ml over the months ahead. The members agreed that the intermeeting range for the federal funds rate, which provides one mechanism for initiating consultation of the Committee when its boundaries are persistently exceeded, should be left unchanged at 4 to 8 percent.

At the conclusion of the meeting the following domestic policy directive was issued to the Federal Reserve Bank of New York: The information reviewed at this meeting suggests some moderation in the expansion of economic activity in the current quarter from the rapid pace in the fourth quarter; the continuing expansion has been supported by a sharp pickup in domestic final sales while the accumulation of inventories appears to have slowed. Total nonfarm payroll employment rose substantially over the first two months of the year, although employment growth slowed somewhat in the manufacturing sector. The civilian unemployment rate fell slightly to 5.7 percent in February. Growth in industrial production moderated in early 1988 from a brisk pace during the second half of 1987. Consumer spending strengthened in January and February, buoyed by higher sales of motor vehicles. Indicators of business capital spending pointed to substantial gains in the first quarter. Housing starts rebounded in February but were still somewhat below the reduced fourth-quarter average. The nominal U.S. merchandise trade deficit changed little in January and was significantly below the fourth-quarter average. In recent months the rise in consumer and producer prices has been relatively modest on balance, reflecting developments in food and energy prices, and wage trends have shown little change. Most interest rates were up somewhat on balance Committee's meeting in February, with the since the largest increases concentrated in bond markets. The trade-weighted foreign exchange value of the dollar in terms of the other G-10 currencies fluctuated in narrow range over most of the intermeeting a relatively period, but declined somewhat in recent days. After strengthening in January, growth of M2 and M3 remained relatively robust in February and in the March. Thus far this year expansion of first part of aggregates appears to have been in the upper these two portion of the ranges established by the Committee for grown moderately on balance since the 1988. Ml has quarter. Expansion in total domestic nonfinancial fourth to be continuing at a pace close to that debt appears in 1987.

Open Market Committee seeks monetary The Federal that will foster price stability and financial conditions in output on a sustainable basis, over time, promote growth improved pattern of international and contribute to an In furtherance of these objectives, the transactions. in February established growth Committee at its meeting 4 to 8 percent for both M2 and M3, measured ranges of fourth quarter of 1987 to the fourth quarter from the monitoring range for growth in total of 1988. The nonfinancial debt was set at 7 to 11 percent domestic for the year. With respect to Ml, the Committee decided in February not to establish a specific target for 1988. The behavior of this aggregate in relation to economic activity and prices has become very sensitive to changes in interest rates, among other factors, as evidenced by sharp swings in its velocity in recent years. Consequently, the appropriateness of changes in Ml this year will continue to be evaluated in the light of the behavior of its velocity, developments in the economy and financial markets, and the nature of emerging price pressures. In the implementation of policy for the immediate future, the Committee seeks to increase slightly the degree of pressure on reserve positions. The Committee agrees that the current more normal approach to open market operations remains appropriate; still sensitive conditions in financial markets and uncertainties in the economic outlook may continue to call for some flexibility in operations. Taking account of conditions in financial markets, somewhat greater reserve restraint or somewhat lesser reserve restraint would be acceptable depending on the strength of the business expansion, indications of inflationary pressures, developments in foreign exchange markets, as well as the behavior of the monetary aggregates. The contemplated reserve conditions are expected to be consistent with growth in M2 and M3 over the period from March through June at annual rates of about 6 to 7 percent. The Chairman may call for Committee consultation if it appears to the Manager for Domestic Operations that reserve conditions during the period before the next meeting are likely to be associated with a federal funds rate persistently outside a range of 4 to 8 percent.

Votes for this action: Messrs. Greenspan, Corrigan, Angell, Black, Forrestal, Heller, Hoskins, Johnson, Kelley, and Parry. Vote against this action: Ms. Seger. Ms. Seger dissented because she did not believe that economic and financial developments warranted any tightening of reserve conditions. She did not see a significant risk of more inflationary pressures on productive resources stemming from prospective demands in domestic and export markets. She remained concerned about the downside risks in the economy, the fragility in financial markets, especially the stock market, and the weakened condition of many depository institutions.