FOMC Minutes

Meeting of the Federal Open Market Committee November 4-5, 1985 Minutes of Actions A meeting of the Federal Open Market Committee was held in the offices of the Board of Governors of the Federal Reserve System in Washington, D. C., on Monday, November 4, 1985, at 3:00 p.m. and continuing on Tuesday, November 5, 1985, at 9:30 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Ms. Volcker, Chairman Corrigan, Vice Chairman Balles Black Forrestal Keehn Martin Partee Rice Seger Mr. Guffey, Mrs. Horn, Messrs. Melzer and Morris, Alternate Members of the Federal Open Market Committee Messrs. Boehne, Boykin, and Stern, Presidents of the Federal Reserve Banks of Philadelphia, Dallas, and Minneapolis, respectively Mr. Axilrod, Staff Director and Secretary Mr. Bernard, Assistant Secretary Mrs Steele, Deputy Assistant Secretary Mr. Bradfield. 1/ General Counsel Mr. Kichline, Economist Mr. Truman, Economist (International) Messrs. Broaddus, Kohn, Lindsey, Prell, Scheld, Siegman, and Ms. Tschinkel, Associate Economists Mr. Sternlight, Manager for Domestic Operations, System Open Market Account Mr. Cross, Manager for Foreign Operations, System Open Market Account 1/ Entered meeting after action to approve minutes of meeting held on October 1, 1985. 11/4-5/85 Mr. Coyne, 1/ Assistant to the Board of Governors Mr. Roberts, 2/ Assistant to the Chairman, Board of Governors Mr. Promisel,3/ Senior Associate Director, Division of International Finance, Board of Governors Mr. Slifman, 3/ Deputy Associate Director, Division of Research and Statistics, Board of Governors Mr. Gemmill,2/ Staff Adviser, Division of International Finance, Board of Governors Mr. Hooper, 3/ Assistant Director, Division of International Finance, Board of Governors Mr. Stockton, 3/ Economist, Division of Research and Statistics, Board of Governors Mrs. Low, Open Market Secretariat Assistant, Board of Governors Mr. Fousek, Executive Vice President, Federal Reserve Bank of New York Messrs. Balbach, J. Davis, T. Davis, Lang, Ms. Munnell, Messrs. Rolnick and Rosenblum, Senior Vice Presidents, Federal Reserve Banks of St. Louis, Cleveland, Kansas City, Philadelphia, Boston, Minneapolis, and Dallas, respectively Mr. Judd, Vice President, Federal Reserve Bank of San Francisco Ms. Walter, Adviser, Open Market Operations, Federal Reserve Bank of New York By unanimous vote, the minutes of actions taken at the meeting of the Federal Open Market Committee held on October 1, 1985, were approved. By unanimous vote, System open market transactions in foreign currencies during the period October 1, 1985, through November 4, 1985, were ratified. By unanimous vote, the Committee authorized the renewal for further periods of one year of the System's reciprocal currency ("swap") arrangements having the amounts and maturity dates indicated below: 1/ Entered meeting after action to approve minutes of meeting held on October 1, 1985. 2/ Attended Tuesday session only. 3/ Attended Monday session only. -3- 11/4-5/85 Foreign bank Amount of arrangement (millions of $ equivalent) Term (months) $ 250.0 1,000.0 2,000.0 250.0 3,000.0 2,000.0 6,000.0 3,000.0 5,000.0 700.0 500.0 250.0 300.0 4,000.0 12 mos. " " " " " " " " " " " " " Austrian National Bank National Bank of Belgium Bank of Canada National Bank of Denmark Bank of England Bank of France German Federal Bank Bank of Italy Bank of Japan Bank of Mexico Netherlands Bank Bank of Norway Bank of Sweden Swiss National Bank Bank for International SettlementsSwiss francs Other authorized European currencies Maturity date 12/ 3/85 12/17/85 12/28/85 12/28/85 12/ 3/85 12/28/85 12/28/85 12/28/85 12/ 3/85 12/ 3/85 12/28/85 12/ 3/85 12/ 3/85 12/ 3/85 600.0 12/ 3/85 1,250.0 12/ 3/85 By unanimous vote, System open market transactions in Government securities and agency obligations during the period October 1, 1985, through November 4, 1985, were ratified. With Ms. Seger dissenting, the Federal Reserve Bank of New York was authorized and directed, until otherwise directed by the Committee, to execute transactions in the System Account in accordance with the following domestic policy directive: The information reviewed at this meeting suggests that economic activity is continuing to expand at a relatively modest pace. In September, total retail sales rose considerably further, but the gain was boosted by a temporary surge in auto sales that was reversed in October. Total nonfarm payroll employment increased considerably in October, following a much 11/4-5/85 -4- slower advance in September, and the civilian unemploy ment rate was unchanged at 7.1 percent. In recent months industrial production has increased only slightly on balance. Housing starts fell in September, but sales of new and existing homes remained at a relatively high level on average. Incoming information generally suggests a leveling of business capital spending. Merchandise trade data for the third quarter indicate that the deficit widened slightly, as imports continued to in crease. Broad measures of prices and wages appear to be rising at rates close to or somewhat below those recorded earlier in the year. M1 appears to have shown little net change in October following several months of rapid expansion. Largely reflecting the weakness in M1, growth in M2 and M3 apparently was quite moderate in October. Expansion in total domestic nonfinancial debt has remained relatively rapid. Most short-term market interest rates have changed little on balance since the October 1 meeting of the Committee, while long term rates have declined somewhat. The trade-weighted value of the dollar against major foreign currencies has dropped slightly further on balance since October 1, following a substantial decline after the September 22 meeting of the Finance Ministers and Central Bank Governors of the G-5 countries. The Federal Open Market Committee seeks to foster monetary and financial conditions that will help to reduce inflation further, 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 the July meeting reaffirmed ranges for the year of 6 to 9 percent for M2 and 6 to 9-1/2 percent for M3. The associated range for total domestic nonfinancial debt was reaffirmed at 9 to 12 percent. With respect to M1, the base was moved forward to the second quarter of 1985 and a range was established at an annual growth rate of 3 to 8 percent. The range takes account of expectations of a return of velocity growth toward more usual patterns, following the sharp decline in velocity during the first half of the year, while also recognizing a higher degree of uncertainty regarding that behavior. The appropriateness of the new range will continue to be reexamined in the light 11/4-5/85 -5- of evidence with respect to economic and financial developments including developments in foreign exchange markets. More generally, the Committee agreed that growth in the aggregates may be in the upper parts of their ranges, depending on continuing developments with respect to velocity and provided that inflationary pressures remain subdued. For 1986 the Committee agreed on tentative ranges of monetary growth, measured from the fourth quarter of 1985 to the fourth quarter of 1986, of 4 to 7 percent for M1, 6 to 9 percent for M2, and 6 to 9 percent for M3. The associated range for growth in total domestic non financial debt was provisionally set at 8 to 11 percent for 1986. With respect to Ml particularly, the Committee recognized that uncertainties surrounding recent behavior of velocity would require careful reappraisal of the target range at the beginning of 1986. Moreover, in establishing ranges for next year, the Committee also recognized that account would need to be taken of ex perience with institutional and depository behavior in response to the completion of deposit rate deregulation early in the year. In the implementation of policy for the immediate future, the Committee seeks generally to maintain about the existing degree of pressure on reserve positions. This action is expected to be consistent with growth in M2 and M3 over the period from September to December at annual rates of about 6 percent. M1 growth over the period at an annual rate of around 6 percent is also anticipated; slower growth for that aggregate would be acceptable in the context of satisfactory economic performance, given the very rapid growth in M1 over the summer. Somewhat greater reserve restraint might, and somewhat lesser reserve restraint would, be acceptable depending on behavior of the aggregates, taking account of appraisals of the strength of the business expansion, developments in foreign exchange markets, progress against inflation. and conditions in domestic and international credit markets. The Chairman may call for Committee consulta tion 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 6 to 10 percent. 11/4-5/85 It was agreed that the next meeting of the Committee would be held on December 17, 1985. The meeting adjourned. Secretary Secretary's Note: On December 9, 1985, the Committee approved an increase of $1 billion, to $7 billion, in the intermeeting limit on changes in System holdings of U.S. government and federal agency securities specified in paragraph l(a) of the Authorization for Domestic Open Market Operations. The action was effective immediately, for the period ending December 17, 1985. Votes for this action: Messrs. Volcker, Balles, Black, Forrestal, Keehn, Martin, Partee, Rice, Ms. Seger, and Mr. Timlen. Votes against this action: None. Absent and not voting: Messrs. Corrigan and Wallich. (Mr. Timlen votes as alternate for Mr. Corrigan.)

Federal Reserve (1985, November 4). FOMC Minutes. Fomc Minutes, Federal Reserve. https://whenthefedspeaks.com/doc/fomc_minutes_19851105

@misc{wtfs_fomc_minutes_19851105,
  author = {Federal Reserve},
  title = {FOMC Minutes},
  year = {1985},
  month = {Nov},
  howpublished = {Fomc Minutes, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/fomc_minutes_19851105},
  note = {Retrieved via When the Fed Speaks corpus}
}