FOMC Minutes

Meeting of the Federal Open Market Committee February 7-8, 1989 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 Tuesday, February 7, 1989, at 3:00 p.m. and continuing on Wednesday, February 8, 1989, at 9:30 a.m. PRESENT: Greenspan, Chairman Corrigan, Vice Chairman Angell Black Forrestal Heller Hoskins Johnson Kelley LaWare Parry Seger Messrs. Guffey, Keehn, Melzer, and Syron, 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 Kohn, Secretary and Economist Bernard, Assistant Secretary Patrikis, Deputy General Counsel Prell, Economist Mr. Truman, Economist Mr. Mr. Mr. Mr. Messrs. Beebe, Broaddus, J. Davis, R. Davis, Lindsey, Siegman, Simpson, 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. Attended Wednesday session only. Mr. Coyne, Assistant to the Board, Board of Governors Mr. Ettin, Deputy Director, Division of Research and Statistics, Board of Governors Mr. Promisel, Senior Associate Director, Division of International Finance, Board of Governors 2 3 Messrs. Hooper, Madigan, and Stockton, Assistant Directors, Divisions of International Finance, Monetary Affairs, and Research and Statistics, respectively, Board of Governors 2 3 3 Messrs. Brayton, Duca, and Rosine, Economists, Divisions of Research and Statistics, Monetary Affairs, and Research and Statistics, respectively, Board of Governors Mr. Keleher, Assistant to Governor Johnson, Office of Board Members, Board of Governors Mr. Wajid, Assistant to Governor Heller, Office of Board Members, Board of Governors Mr. Gillum, Economist, Open Market Secretariat, Division of Monetary Affairs, Board of Governors Ms. Low, Open Market Secretariat Assistant, Division of Monetary Affairs, Board of Governors Messrs. T. Davis, Lang, Rolnick, Rosenblum, and Scheld, Senior Vice Presidents, Federal Reserve Banks of Kansas City, Philadelphia, Minneapolis, Dallas, and Chicago, respectively Messrs. Burger and McNees, Vice Presidents, Federal Reserve Banks of St. Louis and Boston, respectively Ms. Krieger, Manager, Open Market Operations, Federal Reserve Bank of New York Secretary's Note: Prior to this meeting, notice had been received of the election of Richard F. Syron as an alternate member of the Federal Open Market Committee for the period January 1, 1989 through February 28, 1989, and Mr. Syron had executed his Oath of Office. By unanimous vote, the minutes of actions taken at the meeting of the Federal Open Market Committee held on December 13-14, 1988, were approved. 2. Attended portion of meeting relating to the Committee's discussion of the economic outlook. 3. Attended portion of meeting relating to the Committee's discussion of the economic outlook and its longer-run objectives for monetary and debt aggregates. -3- By unanimous vote, System open market transactions in foreign currencies during the period December 14, 1988, through February 7, 1989, were ratified. By unanimous vote, System open market transactions in government securities and federal agency obligations during the period December 14, 1988, through February 7, 1989, were ratified. Secretary's Note: The following actions were taken at the Wednesday session. With Mr. Hoskins dissenting, the following longer-run policy for 1989 was approved by the Committee: 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 this meeting reaffirmed its decision of late June to lower the ranges for growth of M2 and M3 to 3 to 7 percent and 3-1/2 to 7-1/2 percent, respectively, measured from the fourth quarter of 1988 to the fourth quarter of 1989. The monitoring range for growth of total domestic nonfinancial debt was set at 6-1/2 to 10 1/2 percent for the year. The behavior of the monetary aggregates will continue to be evaluated in the light of movements in their velocities, developments in the economy and financial markets, and progress toward price level stability. With Messrs. Hoskins and Parry dissenting from the operational paragraph on policy implementation in the period immediately ahead, 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, apart from the direct effects of the drought, economic activity has continued to expand at a fairly vigorous pace. After strong gains in the fourth quarter, total nonfarm payroll employment rose sharply -4in January, including a sizable increase in manu facturing. The civilian unemployment rate, at 5.4 percent in January, remained in the lower part of the range that has prevailed since the early spring of last year. Industrial production rose appreciably further in December and January. Housing starts declined somewhat in December but were up substantially on balance in the fourth quarter. Consumer spending advanced considerably in the fourth quarter, in part reflecting stronger sales of durable goods. Indicators of business capital spending suggest some weakening in recent months. The nominal U.S. merchandise trade deficit was slightly larger on average in October and November than in the third quarter. The latest information on prices suggests little change from recent trends, while wages have tended to accelerate. The federal funds rate and Treasury bill rates have risen since the Committee meeting in mid-December; other short-term interest rates are generally unchanged to somewhat lower. Bond yields have declined somewhat. In foreign exchange markets, the trade-weighted value of the dollar in terms of the other G-10 currencies rose substantially over the intermeeting period. M2 and M3 weakened appreciably in January, espe cially M2. For the year 1988, M2 expanded at a rate a little below, and M3 at a rate around, the midpoint of the ranges established by the Committee. M1 has changed little on balance over the past several months; it grew about 4-1/4 percent in 1988. Expansion of total domestic nonfinancial debt appears to have moderated somewhat in 1988 to a pace around the midpoint of the Committee's monitoring range for the year. 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 this meeting reaffirmed its decision of late June to lower the ranges for growth of M2 and M3 to 3 to 7 percent and 3-1/2 to 7-1/2 percent, respectively, measured from the fourth quarter of 1988 to the fourth quarter of 1989. The monitoring range for growth of total domestic nonfinancial debt was set at 6-1/2 to 10-1/2 percent for the year. The behavior of the monetary aggregates will continue to be evaluated in the light of movements in their velocities, developments in the economy and financial markets, and progress toward price level stability. -5 In the implementation of policy for the immediate future, the Committee seeks to maintain the existing degree of pressure on reserve positions. Taking account of indications of inflationary pressures, the strength of the business expansion, the behavior of the monetary aggregates, and developments in foreign exchange and domestic financial markets, somewhat greater reserve restraint would, or slightly lesser reserve restraint might, 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 December through March at annual rates of about 2 and 3-1/2 percent, respectively. The Chairman may call for Committee consultation 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 7 to 11 percent. It was agreed that the next meeting of the Committee would be held on Tuesday March 28, 1989. The meeting adjourned. Secretary

Federal Reserve (1989, February 7). FOMC Minutes. Fomc Minutes, Federal Reserve. https://whenthefedspeaks.com/doc/fomc_minutes_19890208

@misc{wtfs_fomc_minutes_19890208,
  author = {Federal Reserve},
  title = {FOMC Minutes},
  year = {1989},
  month = {Feb},
  howpublished = {Fomc Minutes, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/fomc_minutes_19890208},
  note = {Retrieved via When the Fed Speaks corpus}
}