Minutes of the Meeting of the Federal Open Market Committee Held on May 15, 2001

Federal Reserve Bulletin, August, 2001 by Donald L. Kohn

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, May 15, 2001, starting at 9:00 a.m.

Present:
    Mr. Greenspan, Chairman
    Mr. McDonough, Vice Chairman
    Mr. Ferguson
    Mr. Gramlich
    Mr. Hoenig
    Mr. Kelley
    Mr. Meyer
    Ms. Minehan
    Mr. Moskow
    Mr. Poole

    Messrs. Jordan, McTeer, Santomero, and Stern,
        Alternate Members of the Federal Open Market
        Committee

    Messrs. Broaddus, Guynn, and Parry, Presidents
        of the Federal Reserve Banks of Richmond,
        Atlanta, and San Francisco respectively

    Mr. Kohn, Secretary and Economist
    Mr. Gillum, Assistant Secretary
    Ms. Fox, Assistant Secretary
    Mr. Mattingly, General Counsel
    Ms. Johnson, Economist
    Mr. Stockton, Economist

    Ms. Cumming, Messrs. Fuhrer, Hakkio, Howard,
        Lindsey, Rasche, Reinhart, Slifman, and Wilcox,
        Associate Economists

    Mr. Kos, Manager, System Open Market Account

    Mr. Ettin, Deputy Director, Division of Research and
        Statistics, Board of Governors

    Mr. Simpson, Senior Adviser, Division of Research
        and Statistics, Board of Governors

    Messrs. Connors,(1) Madigan, Oliner, and Struckmeyer,
        Associate Directors, Divisions of International
        Finance, Monetary Affairs, Research and
        Statistics, and Research and Statistics,
        Board of Governors

    Mr. Whitesell, Assistant Director, Division
        of Monetary Affairs, Board of Governors

    Mr. Skidmore, Special Assistant to the Board,
        Office of Board Members, Board of Governors

    Mr. Kumasaka, Assistant Economist, Division
        of Monetary Affairs, Board of Governors

    Ms. Low, Open Market Secretariat Assistant,
        Division of Monetary Affairs, Board
        of Governors

    Mr. Connolly, First Vice President, Federal Reserve
        Bank of Boston

    Messrs. Beebe, Eisenbeis, and Goodfriend,
        Mses. Mester and Perelmuter,
        Messrs. Rosenblum and Sniderman, Senior
        Vice Presidents, Federal Reserve Banks
        of San Francisco, Atlanta, Richmond,
        Philadelphia, New York, Dallas, and
        Cleveland respectively

    Mr. Sullivan, Vice President, Federal Reserve Bank
        of Chicago

    Mr. Weber, Senior Research Officer, Federal Reserve
        Bank of Minneapolis

By unanimous vote, the minutes of the meeting of the Federal Open Market Committee held on March 20, 2001, were approved.

The Manager of the System Open Market Account reported on recent developments in foreign exchange markets. There were no open market operations in foreign currencies for the System's account in the period since the previous meeting.

The Manager also reported on developments in domestic financial markets and on System open market transactions in government securities and federal agency obligations during the period March 20, 2001, through May 14, 2001. By unanimous vote, the Committee ratified these transactions.

By unanimous vote, the Committee approved the extension for one year beginning in December 2001 of the System's reciprocal currency ("swap") arrangements with the Bank of Canada and the Bank of Mexico. The arrangement with the Bank of Canada is in the amount of $2 billion equivalent and that with the Bank of Mexico in the amount of $3 billion equivalent. Both arrangements are associated with the Federal Reserve's participation in the North American Framework Agreement. The early vote to renew the System's participation in the swap arrangements maturing in December relates to the provision that each party must provide six months prior notice of an intention to terminate its participation.

The Committee then turned to a discussion of the economic and financial outlook and the implementation of monetary policy over the intermeeting period ahead. A summary of the economic and financial information available at the time of the meeting and of the Committee's discussion is provided below, followed by the domestic policy directive that was approved by the Committee and issued to the Federal Reserve Bank of New York.

The information reviewed at this meeting suggested that the economic expansion remained very sluggish. Household spending, especially for housing and motor vehicles, had held up relatively well, but business investment was quite weak and appeared to be decreasing further. Persistent inventory overhangs in a number of sectors had led to additional substantial cuts in manufacturing production. Reflecting in part the downtrend in manufacturing output, labor demand had weakened considerably and unemployment had risen. Price inflation had picked up a little but, abstracting from energy, had remained relatively subdued.

Private nonfarm payroll employment fell sharply in April after a small drop in March. Manufacturing, construction, and the service sector recorded large payroll declines in April, and gains elsewhere were small. The unemployment rate increased further, to 4.5 percent in April, and initial claims for unemployment insurance averaged over the four weeks ended April 28 were at their highest level since 1993.