November 13, 1990 FOMC Record of Policy Actions

FOMC minutes

support of this view, it was noted that in prevailing circumstances an intermeeting move, if any, was more likely to be toward some easing than the reverse. A few members questioned, however, whether such a bias was desirable in light of the slight easing that the members already contemplated, especially since any additional move would represent the third easing action by the Committee in a relatively short period. In the circumstances, it was understood that a tilt toward ease in the directive would not imply any commitment to a second easing action during the intermeeting period; in particular, the potential desirability of any additional easing would need to be assessed in the light of market reactions to the initial action, especially the behavior of the dollar in the foreign exchange markets. At the conclusion of the Committee's discussion, all of the members indicated their acceptance of a directive that called for a slight reduction in the degree of pressure on reserve positions. The directive also called for giving weight to potential developments that might require some slight further easing during the intermeeting period. Accordingly, slightly greater reserve restraint might be acceptable during the intermeeting period or somewhat lesser reserve restaint would be acceptable depending on progress towards price stability, the strength of the business expansion, the behavior of the monetary aggregates, and developments in foreign exchange and domestic financial markets. 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 a weakening in economic activity. Total nonfarm payroll employment declined further in October,

sizable job losses in manufacturing and reflecting the civilian unemployment rate held construction; steady at 5.7 percent. Industrial production declined sharply in October after rising moderately during the Consumer spending is estimated to have summer. out in real terms over August and September flattened when a surge in energy prices caused a substantial disposable income. Advance indicators of drop in real business capital spending point to considerable softening in investment in coming months. Residential weakened further in the third quarter. construction The nominal U.S. merchandise trade deficit widened substantially in July-August from its average rate in quarter as imports strengthened. Markedly the second higher oil prices have boosted consumer and producer recent months. The latest data on labor prices in suggest some slight improvement from earlier costs trends. Most interest rates have fallen somewhat since the Committee meeting on October 2. In foreign exchange markets, the trade-weighted value of the dollar in terms of the other G-10 currencies has declined considerably further over the intermeeting period. In October, M2 grew only slightly after two months of relatively rapid expansion, while M3 was about unchanged. Through October, expansion of M2 was estimated to be somewhat below the middle of the Committee's range for the year and growth of M3 near the lower end of its range. Expansion of total domestic nonfinancial debt appears to have been near the midpoint of its monitoring range. The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability, promote growth in output on a sustainable basis, and contribute to an improved pattern of international transactions. In furtherance of these objectives, the Committee at its meeting in July reaffirmed the range it had established in February for M2 growth of 3 to 7 percent, measured from the fourth quarter of 1989 to the fourth quarter of 1990. The Committee in July also retained the monitoring range of 5 to 9 percent for the year that it had set for growth of total domestic nonfinancial debt. With regard to M3, the Committee recognized that the ongoing restructuring of thrift depository institutions had depressed its growth relative to spending and total credit more than anticipated. Taking account of the unexpectedly strong M3 velocity, the Committee decided in July to reduce the 1990 range to 1 to 5

percent. For 1991, the Committee agreed on provisional ranges for monetary growth, measured from the fourth quarter of 1990 to the fourth quarter of 1991, of 2-1/2 to 6-1/2 percent for M2 and 1 to 5 percent for M3. The Committee tentatively set the associated monitoring range for growth of total domestic nonfinancial debt at 4-1/2 to 8-1/2 percent for 1991. The behavior of the monetary aggregates will continue to be evaluated in the light of progress toward price level stability, movements in their velocities, and developments in the economy and financial markets. In the implementation of policy for the immediate future, the Committee seeks to decrease slightly the existing degree of pressure on reserve positions. Taking account of progress toward price stability, the strength of the business expansion, the behavior of the monetary aggregates, and developments in foreign exchange and domestic financial markets, slightly greater reserve restraint might or somewhat lesser reserve restraint would be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with growth of both M2 and M3 over the period from September through December at annual rates of about 1 to 2 percent. Votes for this action: Messrs. Greenspan, Corrigan, Angell, Boehne, Boykin, Hoskins, Kelley, LaWare, Mullins, Ms. Seger, and Mr. Stern. Votes against this action: None. At this meeting, the Committee reviewed its practice of including a sentence in the operational paragraph of the directive that referred to the possibility of a Committee consultation to be called at the Chairman's discretion during an intermeeting period in the event that the federal funds rate fluctuated persistently outside a relatively wide range. That range had been set at 4 percentage points for many years and was a legacy of now outdated operating procedures that had been in place in the early 1980's. The members agreed that under current procedures the directive sentence in question served no real purpose, at least in its present form, in terms of providing guidance for holding intermeeting consultations. Such consultations are based on

understandings that vary over time, depending on surrounding circumstances. Accordingly, all of the members favored or found a proposal calling for deletion of the sentence. The members acceptable would have no implications for the implemennoted that the deletion tation of monetary policy or for the Committee's understandings or procedures with respect to what reserve market, financial, or economic conditions would call for consultations between meetings. At the conclusion of this discussion, the members voted to delete the sentence incorporating the federal funds range from the operational paragraph. Votes for this action: Messrs. Greenspan, Corrigan, Angell, Boehne, Boykin, Hoskins, Kelley, LaWare, Mullins, Ms. Seger, and Mr. Stern. Votes against this action: None.