[Federal Register Volume 64, Number 10 (Friday, January 15, 1999)]
[Notices]
[Page 2653]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-906]



[[Page 2653]]

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FEDERAL RESERVE SYSTEM


Federal Open Market Committee; Domestic Policy Directive of 
November 17, 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 November 17, 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 November 17, 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 some moderation 
in the expansion of economic activity from a brisk pace during the 
summer months. Growth in nonfarm payroll employment slowed appreciably 
in September and October; the civilian unemployment rate remained near 
4-1/2 percent. Industrial production has declined slightly in recent 
months. Business inventory accumulation was sizable in the third 
quarter, and stock-sales ratios rose to uncomfortable levels in some 
sectors strongly affected by the nation's trade deficit. The nominal 
deficit on U.S. trade in goods and services widened somewhat in July-
August from its second-quarter average. Total retail sales rose sharply 
in October after increasing only moderately in August and September. 
Residential sales and building starts have remained quite strong, but 
below recent peaks. Available indicators point to a pickup in business 
capital spending after a lull in the third quarter, owing in part to a 
recovery from the summer strike in the motor vehicle industry. Trends 
in various measures of wages and prices have been mixed in recent 
months.
    Most market interest rates have risen on balance since the meeting 
on September 29, though yields on the bonds of lower-rated firms have 
declined. The Board of Governors approved a reduction in the discount 
rate from 5 to 4-3/4 percent on October 15. Share prices in U.S. and 
global equity markets have remained volatile but have posted sizable 
gains on balance over the intermeeting period. In foreign exchange 
markets, the trade-weighted value of the dollar declined moderately 
over the period in relation to other major currencies; it also fell 
somewhat in terms of an index of the currencies of other countries that 
are important trading partners of the United States.
    M2 and M3 have posted very large gains in recent months, reflecting 
the effects of recent System easing actions on market interest rates 
and shifts of funds by households out of investments in equities and 
lower-rated corporate debt. For the year through October, both 
aggregates rose at rates well above the Committee's ranges for the 
year. Expansion of total domestic nonfinancial debt has moderated 
slightly 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 4-3/4 
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 or a slightly 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, January 4, 1999.
Normand R. Bernard
Deputy Secretary, Federal Open Market Committee.
[FR Doc. 99-906 Filed 1-14-99; 8:45 am]
BILLING CODE 6210-01-F