[Federal Register Volume 63, Number 171 (Thursday, September 3, 1998)]
[Notices]
[Page 47025]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-23747]


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FEDERAL RESERVE SYSTEM


Federal Open Market Committee; Domestic Policy Directive of June 
30-July 1, 1998.

    In accordance with Sec.  271.5 of its rules regarding availability 
of information (12 CFR part 271), there is set forth below the domestic 
policy directive issued by the Federal Open Market Committee at its 
meeting held on June 30-July 1, 1998.\1\ The directive was issued to 
the Federal Reserve Bank of New York as follows:
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    \1\ Copies of the Minutes of the Federal Open Market Committee 
meeting of June 30-July 1, 1998, which include the domestic policy 
directive issued at that meeting, are available upon request to the 
Board of Governors of the Federal Reserve System, Washington, D.C. 
20551. The minutes are published in the Federal Reserve Bulletin and 
in the Board's annual report.
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    The information reviewed at this meeting suggests that the 
expansion in economic activity has slowed considerably after a very 
rapid advance in the first quarter. Nonfarm payroll employment 
registered another substantial increase in May, and the civilian 
unemployment rate was unchanged at 4.3 percent. Industrial output 
picked up in recent months after weakening early this year; however, a 
strike at General Motors likely depressed output substantially in June. 
Although retail sales posted large gains in April and May, overall 
consumer spending appears to have grown less rapidly in the second 
quarter than in the first. Residential sales have remained 
exceptionally strong, but housing starts and building permits slipped 
back in the spring, on a seasonally adjusted basis, from a sharply 
increased first-quarter level. Available indicators suggest that growth 
of business fixed investment also is slowing after a surge earlier in 
the year. Business inventory accumulation appears to have moderated in 
April from an extraordinarily rapid rate in the first quarter. The 
nominal deficit on U.S. trade in goods and services continued to widen 
in April. Developments in the food and energy sectors contributed to a 
slightly faster advance in consumer prices in May.
    Most short -term interest rates have changed little since the 
meeting on May 19, but longer-term rates have declined somewhat. Share 
prices in U.S. equity markets remained volatile and changes in major 
indexes were mixed on balance over the intermeeting period. In foreign 
exchange markets, the trade-weighted value of the dollar rose sharply 
through mid-June in terms of other major currencies, declined more 
recently, but is up somewhat on net since the May meeting; the 
fluctuations in the average value of the dollar in terms of these major 
currencies were largely related to movements against the Japanese yen. 
The dollar has risen further against the currencies of key emerging 
market economies, particularly some of those in Asia.
    Growth of M2 and M3 slowed in the second quarter, but remained 
fairly robust. For the year through June, both aggregates rose at rates 
well above the Committee's ranges for the year. Expansion of total 
domestic nonfinancial debt appears to have moderated somewhat after a 
pickup earlier in 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 
reaffirmed at this meeting the ranges it had established in February 
for growth of M2 and M3 of 1 to 5 percent and 2 to 6 percent 
respectively, measured from the fourth quarter of 1997 to the fourth 
quarter of 1998. The range for growth of total domestic nonfinancial 
debt was maintained at 3 to 7 percent for the year. For 1999, the 
Committee agreed on tentative ranges for monetary growth, measured from 
the fourth quarter of 1998 to the fourth quarter of 1999, of 1 to 5 
percent for M2 and 2 to 6 percent for M3. The Committee provisionally 
set the associated range for growth of total domestic nonfinancial debt 
at 3 to 7 percent for 1999. 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 conditions in reserve markets consistent with 
maintaining the federal funds rate at an average of around 5-1/2 
percent. 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, a 
somewhat higher federal funds rate would or a slightly lower federal 
funds rate might be acceptable in the intermeeting period. The 
contemplated reserve conditions are expected to be consistent with 
moderate growth in M2 and M3 over coming months.
    By order of the Federal Open Market Committee, August 21, 1998.
Donald L. Kohn,
Secretary, Federal Open Market Committee.
[FR Doc. 98-23747 Filed 9-2-98; 8:45 am]
BILLING CODE 6210-01-F