February 6–7, 1990 FOMC Record of Policy Actions

FOMC minutes

in the light of progress toward price to be evaluated movements in their velocities, and level stability, and financial markets. developments in the economy In the implementation of policy for the immediate seeks to maintain the existing future, the Committee of pressure on reserve positions. Taking degree toward price stability, the account of progress the business expansion, the behavior of strength of the monetary aggregates, and developments in foreign and domestic financial markets, slightly exchange or slightly lesser reserve greater reserve restraint be acceptable in the intermeeting restraint would period. The contemplated reserve conditions are expected to be consistent with growth of M2 and M3 the period from December through March at annual over 7 and 3-1/2 percent respectively. The rates of about call for Committee consultation if it Chairman may appears to the Manager for Domestic Operations that conditions during the period before the next reserve meeting are likely to be associated with a federal funds rate persistently outside a range of 6 to 10 percent. Votes for the paragraph on short-term policy implementation: Messrs. Greenspan, Corrigan, Angell, Boehne, Johnson, Kelley, LaWare, and Stern. Votes against this action: Messrs. Boykin and Hoskins and Ms. Seger. While taking account of the various elements of weakness and fragility in the economy, Mr. Boykin dissented because he preferred a policy directive tilted toward increased reserve pressures should economic and financial conditions warrant. This view was based on his concerns regarding the lagged effects of policy actions and the risks of delaying decisions until there was full confirmation of inflationary pressures. In this context, Mr. Boykin expressed his preference for dealing promptly with inflation if the Committee wished to make progress toward its long-stated goal of lowering the rate of inflation. Mr. Hoskins dissented because he preferred some firming of reserve conditions. He recognized that there was some financial

fragility in the economy, but he believed that underlying inflation pressures were relatively strong and that the balance of risks pointed to a need for greater monetary restraint to curb such inflation. He emphasized the desirability of tightening monetary policy gradually to reduce monetary growth to a pace closer to the midpoint of the Committee's range for the year. Ms. Seger's dissent reflected a preference for some easing of reserve conditions at this point. In her view, even a limited decline in interest rates would provide timely assistance to relatively weak, interest-sensitive sectors of the economy such as housing and motor vehicles and would tend to sustain the expansion itself without adding to inflation risks in the economy. 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 January 1, 1990. 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. Votes for this action: Messrs. Greenspan, Corrigan, Angell, Boehne, Boykin, Hoskins, Johnson, Kelley, LaWare, Ms. Seger and Mr. Stern. Votes against this action: None.

3. Authorization for Domestic Open Market Operations On the recommendation of the Manager for Domestic Operations, 1(a) of the authorization for domestic the Committee amended paragraph from $6 billion to $8 billion the limit open market operations to raise changes in System account holdings of U.S. government on intermeeting and federal agency securities. The increase was the first permanent change in the limit since March 1985 when it was raised from $4 billion to $6 billion. The Manager indicated that temporary increases had been authorized more frequently in recent years and that the existing limit also was approached more often during intermeeting intervals when no temporary increase was requested. A permanent increase to $8 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 a $2 billion increase would be appropriate. Accordingly, effective February 6, 1990, paragraph 1(a) of the authorization for domestic open market operations was amended to read as follows: 1. The Federal Open Market Committee authorizes and directs the Federal Reserve Bank of New York, to the extent necessary to carry out the most recent domestic policy directive adopted at a meeting of the Committee: (a) To buy or sell U. S. Government securities, including securities of the Federal Financing Bank, and securities that are direct obligations of, or fully guaranteed as to principal and interest by, any agency of the United States in the open market, from or to securities 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 $8.0 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. Greenspan, Corrigan, Angell, Boehne, Boykin, Hoskins, Johnson, Kelley, LaWare, Ms. Seger and Mr. Stern. Votes against this action: None.