Minutes of the Federal Open Market Committee Meeting held on September 24, 1996

Federal Reserve Bulletin, Jan, 1997

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, September 24, 1996 at 9:00 a.m.

Present:

Mr. Greenspan, Chairman

Mr. McDonough, Vice Chairman

Mr. Boehne

Mr. Jordan

Mr. Kelley

Mr. Lindsey

Mr. McTeer

Mr. Meyer

Ms. Phillips

Ms. Rivlin

Mr. Stern

Ms. Yellen

Messrs. Broaddus, Guynn, Moskow, and Parry,

Alternate Members of the Federal

Open Market Committee

Messrs. Hoenig, Melzer, and Ms. Minehan,

Presidents of the Federal Reserve Banks of

Kansas City, St. Louis, and Boston respectively

Mr. Kohn, Secretary and Economist

Mr. Bernard, Deputy Secretary

Mr. Coyne, Assistant Secretary

Mr. Gillum, Assistant Secretary

Mr. Mattingly, General Counsel

Mr. Baxter, Deputy General Counsel

Mr. Prell, Economist

Mr. Truman, Economist

Messrs. Lang, Lindsey, Mishkin, Promisel,

Rosenblum, Siegman, Simpson, Sniderman,

and Stockton, Associate Economists

Mr. Fisher, Manager, System Open Market Account

Mr. Ettin, Deputy Director, Division of Research and

Statistics, Board of Governors

Messrs. Madigan and Slifman, Associate Directors,

Divisions of Monetary Affairs and Research and

Statistics respectively, Board of Governors

Mr. Smith,(1) Assistant Director, Division of

International Finance, Board of Governors

Ms. Low, Open Market Secretariat Assistant,

Division of Monetary Affairs, Board of

Governors

Ms. Pianalto, First Vice President, Federal Reserve

Bank of Cleveland

Messrs. Beebe, Davis, Dewald, Eisenbeis, and Hunter,

Senior Vice Presidents, Federal Reserve Banks

of San Francisco, Kansas City, St. Louis,

Atlanta, and Chicago respectively

Messrs. Bentley, Hetzel, Ms. Krieger, and

Mr. Rosengren, Vice Presidents, Federal

Reserve Banks of New York, Richmond,

New York, and Boston respectively

Mr. Weber, Senior Research Officer, Federal Reserve

Bank of Minneapolis

(1.) Attended portion of meeting relating to proposal to amend the Authorization for Foreign Currency Operations.

By unanimous vote, the minutes of the meeting of the Federal Open Market Committee held on August 24, 1996, were approved.

The Manager of the System Open Market Account reported on recent developments in foreign exchange markets. There were no open market transactions in foreign currencies for System account during the period since the meeting on August 20, 1996, and thus no vote was required of the Committee.

The Manager also reported on recent developments in domestic financial markets and on System open market transactions in U.S. government securities and federal agency obligations during the period August 20, 1996, through September 20, 1996. By unanimous vote, the Committee ratified these transactions.

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 expansion of economic activity had moderated appreciably from an elevated second-quarter pace. Growth in consumer spending had slowed noticeably, and higher mortgage rates seemed to be exerting some modest restraint on housing demand. While business demand for durable equipment remained strong, spending on nonresidential structures had weakened a little. Business inventory accumulation appeared to have picked up, although the level of inventories remained modest in relation to sales. Employment and production had continued to post sizable gains in recent months, but the increases were somewhat below those recorded earlier in the year. Consumer price inflation, excluding its food and energy components, had edged lower this year despite somewhat larger increases in labor compensation.

Private nonfarm payroll employment grew less rapidly over July and August than it had in the second quarter" aggregate hours worked by private production workers also expanded at a slower pace over the two-month period. Job growth in the services industries was somewhat lower over the two months compared with that of the second quarter. Manufacturing employment changed little on balance over the July-August period, and construction hiring was down considerably in August after a July increase that was a little above the pace of the second quarter. The civilian unemployment rate declined to 5.1 percent in August.

Industrial production also advanced somewhat less rapidly on average in July and August after having recorded strong gains in the previous few months, slower growth was evident in mining and utilities as well as in manufacturing. Smaller increases in the output of motor vehicles and parts accounted for part of the slowdown in the expansion of the manufacturing sector in August, in addition, the output of consumer goods other than motor vehicles remained sluggish, and the production of construction supplies declined significantly after having surged in the second quarter. Elsewhere in manufacturing, business equipment, notably its office and computing component, continued its robust expansion over July and August, and defense and space equipment extended the upturn that had begun in the second quarter. The rate of utilization of total industrial capacity was unchanged on balance from June to August and remained at a relatively high level.