[Federal Register Volume 63, Number 232 (Thursday, December 3, 1998)]
[Notices]
[Page 66810]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-32152]


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FEDERAL RESERVE SYSTEM


Federal Open Market Committee; Domestic Policy Directive of 
September 29, 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 September 29, 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 September 29, 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 economy 
has been growing at a moderate rate, paced by brisk, albeit slowing, 
increases in spending by businesses and households, while expansion in 
overall economic activity has continued to be restrained by 
developments abroad. Nonfarm payroll employment grew somewhat more 
slowly over July and August, mostly reflecting job losses in the 
manufacturing sector; the civilian unemployment rate was unchanged at 
4.5 percent in August. Industrial production has changed little on 
balance over recent months. Total retail sales over July and August 
were held down by a sharp contraction in spending for motor vehicles. 
Residential sales and construction have remained quite strong in recent 
months. Available indicators point to continued growth in business 
capital spending, but at a more moderate pace than in the first half of 
the year. Business inventory accumulation slowed further in July. The 
nominal deficit on U.S. trade in goods and services narrowed slightly 
in July from its second-quarter average. Trends in wages and prices 
have remained stable in recent months.
    Most interest rates have fallen appreciably since the meeting on 
August 18, though yields on the bonds of lower-rated firms have 
increased and the number of large banks have tightened terms and 
standards for making business loans. Broadly similar developments have 
occurred in major foreign markets. Share prices in U.S. and global 
equity markets have remained volatile and major indexes have declined 
considerably further on balance over the intermeeting period. In 
foreign exchange markets, the trade-weighted value of the dollar 
declined substantially over the intermeeting period in relation to 
other major currencies; 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.
    Growth of M2 and M3 strengthened considerably in August and 
appeared to have picked up further in September, partly reflecting 
shifts of funds by households out of investments in equities and lower-
rated corporate debt. For the year through September, both aggregates 
rose at rates well above the Committee's ranges for the year. Expansion 
of total domestic nonfinancial debt has 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 
decreasing the federal funds rate to an average of around 5-1/4 
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 might or a somewhat lower federal 
funds rate would be acceptable in the intermeeting period. The 
contemplated reserve conditions are expected to be consistent with some 
moderation in the growth in M2 and M3 over coming months.
    By order of the Federal Open Market Committee, November 24, 
1998.
Donald L. Kohn,
Secretary, Federal Open Market Committee.
[FR Doc. 98-32152 Filed 12-2-98; 8:45 am]
BILLING CODE 6210-01-F