October 6, 1992 FOMC Record of Policy Actions

FOMC minutes

offering rates and shifts of funds to higher decreases in deposit alternatives such as bond and stock mutual funds, with little yielding or overall economic activity. The members effect on consumer spending the need to assure adequate monetary expansion nonetheless recognized noted that money growth appreciably below for a growing economy and be a matter of increasing concern. A current expectations would the growth of Ml and reserves, which had differing view focused on months of 1991. In this view, the been very rapid since the latter growth in narrow measures of money was indicative of a quite outsized but given the long lags that were stimulative monetary policy, consequences of such growth, if allowed to involved, the inflationary not become evident until much later, perhaps not until continue, might well into 1994. At the conclusion of the Committee's discussion, a majority of the members indicated their acceptance of a directive that called for maintaining the existing degree of pressure on reserve positions and an understanding that there would be a marked bias toward possible easing during the intermeeting period. Two of the members expressed a strong preference for a symmetric directive with regard to possible intermeeting policy adjustments, while two others were firmly persuaded of the desirability of an immediate increase in reserve availability to strengthen the growth of M2. Accordingly, 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, it was decided that slightly greater monetary restraint might be acceptable or slightly lesser monetary restraint would be acceptable during the intermeeting period. The reserve conditions contemplated at this meeting were expected to be consistent with growth in M2 and M3 at annual rates of

1 percent respectively over the three-month period from about 2 and September through December. conclusion of the meeting, the following domestic At the Reserve Bank of New York: was issued to the Federal policy directive at this meeting suggests The information reviewed at a subdued pace. activity is expanding that economic employment declined somewhat Total nonfarm payroll September, but the civilian unemployment further in 7.5 percent. Industrial production rate edged down to declined appreciably since July. is estimated to have expenditures appear to have Real personal consumption third quarter. Data on housing risen moderately in the but on balance they continue to have been mixed, gradual uptrend in housing expenditures. suggest a data on orders and shipments of nondefense Recent indicate slower growth in outlays for capital goods business equipment, while expenditures for nonresidential construction have been weak. The nominal U.S. merchandise trade deficit widened somewhat in July from second quarter. Incoming data its average rate in the on wages and prices suggest that inflation is slowing. Short-term interest rates have declined somewhat, while longer-term rates are about unchanged since the Committee meeting on August 18. In foreign exchange trade-weighted value of the dollar in markets, the terms of the other G-10 currencies fluctuated widely intermeeting period but ended the period over the higher on balance. Expansion of M2 and M3 resumed in August, though at fairly slow rates, and limited growth appears to have continued in September. Through September both were estimated to have grown at rates aggregates somewhat below the lower ends of the ranges established by the Committee for the year. The Federal Open Market Committee seeks monetary and financial conditions that will foster price stability and promote sustainable growth in output. In furtherance of these objectives, the Committee at its meeting on June 30-July 1 reaffirmed the ranges it had established in February for growth of M2 and M3 of 2-1/2 to 6-1/2 percent and 1 to 5 percent respectively, measured from the fourth quarter of 1991 to the fourth quarter of 1992. The Committee anticipated that developments contributing to unusual velocity increases could persist in the second half of the year. The 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 tentative basis set the same ranges as in 1992 for

growth of the monetary aggregates and debt measured from the fourth quarter of 1992 to the fourth quarter of 1993. 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 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 September through December at annual rates of about 2 and 1 percent, respectively. Votes for this action: Chairman Greenspan, Vice Chairman Corrigan. Messrs. Angell, Hoenig, Kelley, Mullins. Ms. Phillips. and Mr. Syron. Votes against this action: Messrs. Jordan, LaWare. Lindsey, and Melzer. Messrs. Jordan and Lindsey preferred immediate action by the Committee to increase the availability of bank reserves sufficiently to achieve the Committee's pre-announced target growth for M2 in 1992. Such reserve provision would likely be associated with further declines in short-term market interest rates. They believed that this policy action by the Committee should be accompanied by an announcement of reductions of the upper and lower limits of the range for M2 growth in 1993. They felt that it was important to make clear that near-term action to increase M2 expansion was not an abandonment of the long-term objective of non-inflationary monetary growth. Messrs. LaWare and Melzer dissented because they did not want to bias the directive toward possible easing during the intermeeting period. In their view, a variety of indicators,

including the level of short-term interest rates and the growth of reserves, suggested that monetary policy already was positioned to foster an expansion in economic activity consistent with the economy's long-run potential. Moreover, further easing at this time would incur the dollar in the foreign exchange a substantial risk of destabilizing In these circumstances, they favored a steady monetary markets. was not disposed to react to near-term weakness in policy that economic data and that allowed more time for the effects of earlier easing actions to be felt in the economy. Mr. Melzer also expressed concern that the progress already made toward achieving price stability might be jeopardized if very rapid growth in M1 were to continue.