[Federal Register Volume 63, Number 200 (Friday, October 16, 1998)]
[Notices]
[Pages 55615-55616]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-27737]


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FEDERAL RESERVE SYSTEM


Federal Open Market Committee; Domestic Policy Directive of 
August 18, 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 August 18, 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 August 18, 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 domestic 
final demand has continued to expand at a robust pace, but overall 
economic activity has been adversely affected by the strike at General 
Motors and developments in Asia. Nonfarm payroll

[[Page 55616]]

employment continued to expand through July and the civilian 
unemployment rate was unchanged at 4.5 percent. Industrial production 
declined considerably in June and July; most of the drop over the two 
months reflected the GM strike. A decline in total retail sales in July 
was more than accounted for by a sharp contraction in spending for 
motor vehicles. Residential sales and construction have remained 
exceptionally strong in recent months. Available indicators point to 
continued growth in business capital spending, although apparently at a 
more moderate pace than earlier in the year. Business inventory 
accumulation slowed sharply in the spring. The nominal deficit on U.S. 
trade in goods and services widened substantially further in the second 
quarter. Trends in wages and prices have remained stable in recent 
months.
    Most interest rates have fallen slightly on balance since the 
meeting on June 30-July 1. Share prices in U.S. equity markets have 
remained volatile and major indexes have declined appreciably on 
balance over the intermeeting period. In foreign exchange markets, the 
trade-weighted value of the dollar rose somewhat further over the 
intermeeting period in relation to other major currencies; in addition, 
it was up slightly in terms of an index of the currencies of the 
developing countries of Latin America and Asia that are important 
trading partners of the United States.
    After robust growth in the second quarter, M2 decelerated somewhat 
and M3 was about unchanged in July. For the year through July, 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 in recent months 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 its meeting on June 30-July 1 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 a tentative basis to set the same ranges 
for growth of the monetary aggregates and debt, measured from the 
fourth quarter of 1998 to the fourth quarter of 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 
slightly higher federal funds rate or a slightly lower federal funds 
rate would 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, October 7, 1998.
Donald L. Kohn,
Secretary, Federal Open Market Committee.
[FR Doc. 98-27737 Filed 10-15-98; 8:45 am]
BILLING CODE 6210-01-F