August 18, 1992 FOMC Record of Policy Actions

FOMC minutes

below the lower ends of the Committee's ranges. Such a development with the Committee's policy objectives if, as would be consistent velocity of M2 and M3 were to expected, unusual strength in the the balance of the year. In the circumstances, monetary persist over of velocity behavior would need to be monitored growth and indicators carefully over coming months. In the Committee's discussion of possible intermeeting to the degree of reserve pressure, a majority of the adjustments their preference or acceptance of a directive that members indicated possible easing during the weeks ahead. Members was biased towards some easing over the near term indicated that they could who preferred that gave particular weight to developments that support a directive might call for an easing move. Some others noted that while they might have preferred a symmetric directive in current circumstances, the proposed bias in the directive was acceptable because an easing of reserve conditions was more likely than a tightening in the intermeeting period. Moreover, a return to a symmetric directive might well be misread as a change in policy that the Committee did not intend at this point. Two members expressed a strong preference for a symmetric directive because they were persuaded that monetary policy should not be eased except in response to compelling new evidence that was impeding an expansion of the economy in line with current policy its long-run potential. They noted that a symmetric directive would not rule out a policy change, in either direction, during the intermeeting period if such a change appeared to be warranted by the incoming economic or financial information. At the conclusion of the Committee's discussion, all but two of the members indicated that they favored or could accept a directive called for maintaining the existing degree of pressure on reserve that

positions and that included a bias toward possible easing during the period. Accordingly, in the context of the Committee's intermeeting price stability and sustainable economic long-run objectives for to economic, financial, and growth, and giving careful consideration reserve restraint might be developments, slightly greater monetary lesser reserve restraint would be acceptable acceptable or slightly period. The reserve conditions contemplated during the intermeeting be consistent with growth in M2 and at this meeting were expected to about 2 percent and 1/2 percent respectively M3 at annual rates of the six-month period from June through December. over At the conclusion of the meeting, the following domestic was issued to the Federal Reserve Bank of New York: policy directive The information reviewed at this meeting suggests that economic activity is continuing to expand at a subdued pace. Total nonfarm payroll employment rebounded in July after declining in June, and the civilian unemployment rate edged down to 7.7 percent. Manufacturing output was unchanged in July, but overall industrial production was boosted by a higher level of mining and utility output. Retail sales increased moderately in July. Permits issued for the construction of new housing units rose slightly in July, but housing starts fell. Recent data on orders and shipments of nondefense capital goods indicate further increases in outlays for business equipment, while nonresidential construction has remained soft. The nominal U.S. merchandise trade deficit in April-May was substantially above its average rate in the first quarter. Incoming data on wages and prices suggest that inflation is slowing. Interest rates have declined considerably since the Committee meeting on June 30-July 1. The Board of Governors approved a reduction in the discount rate from 3-1/2 to 3 percent on July 2. In foreign exchange markets, the trade-weighted value of the dollar in terms of the other G-10 currencies declined further over the first several weeks of the intermeeting period, but it has stabilized more recently.

somewhat further in July. M2 and M3 contracted aggregates were appreciably below Through July, both ends of the ranges established by the the lower Committee for the year. Market Committee seeks monetary The Federal Open that will foster price staand financial conditions sustainable growth in output. In bility and promote of these objectives, the Committee at its furtherance on June 30-July 1 reaffirmed the ranges it had meeting in February for growth of M2 and M3 of established 2-1/2 to 6-1/2 percent and 1 to 5 percent respectively, fourth quarter of 1991 to the fourth measured from the quarter of 1992. The Committee anticipated that contributing to unusual velocity increases developments in the second half of the year. The could persist monitoring range for growth of total domestic nonfinancial debt also was maintained at 4-1/2 to 8-1/2 percent for the year. For 1993, the Committee on a set the same ranges as in 1992 for tentative basis growth of the monetary aggregates and debt measured fourth quarter of 1992 to the fourth quarter from the The behavior of the monetary aggregates will of 1993. 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 maintain the existing degree of pressure on reserve positions. In the context of the Committee's long-run objectives for price stability and sustainable economic growth, and giving careful consideration to economic, financial, and monetary developments, slightly greater reserve restraint might or slightly lesser reserve restraint would be acceptable in the intermeeting period. The contemplated reserve conditions are expected to be consistent with growth of M2 and M3 over the period from June through December at annual rates of about 2 and 1/2 percent, respectively. Votes for this action: Messrs. Greenspan, Corrigan, Angell, Hoenig, Jordan, Kelley, Lindsey, Mullins, Ms. Phillips, and Mr. Syron. Votes against this action: Messrs. LaWare and Melzer. Messrs. LaWare and Melzer dissented because they did not favor a directive that was biased toward possible easing during the intermeeting period. In their view, monetary policy already was as evidenced in part by the low level of appropriately stimulative,

short-term interest rates and by the rapid growth in reserves since this year, and was consistent with the promotion of economic early long-run potential. Business and growth in line with the economy's fact at low levels, but they reflected a consumer confidence were in economy that were unrelated to the variety of problems facing the what was needed at this point stance of monetary policy. Accordingly, monetary policy--one that was less predisposed to was a more patient weakness in economic data and that allowed more react to near-term effects of earlier easing actions to be reflected in the time for the economy. Indeed, an easing move in present circumstances might well stimulate inflationary concerns by reducing confidence in the System's willingness to pursue an anti-inflationary policy and thus could have adverse repercussions on domestic bond markets and further damaging effects on the dollar in foreign exchange markets.