PREFATORY NOTE

These transcripts have been produced from the original raw
transcripts in the FOMC Secretariat's files. The Secretariat has
lightly edited the originals to facilitate the reader's understanding.
Where one or more words were missed or garbled in the transcription,
the notation "unintelligible" has been inserted. In some instances,
words have been added in brackets to complete a speaker's thought or
to correct an obvious transcription error or misstatement.
Errors undoubtedly remain. The raw transcripts were not
fully edited for accuracy at the time they were produced because they
were intended only as an aid to the Secretariat in preparing the
records of the Committee's policy actions. The edited transcripts
have not been reviewed by present or past members of the Committee.
Aside from the editing to facilitate the reader's
understanding, the only deletions involve a very small amount of
confidential information regarding foreign central banks, businesses.
and persons that are identified or identifiable. Deleted passages are
indicated by gaps in the text. All information deleted in this manner
is exempt from disclosure under applicable provisions of the Freedom
of Information Act.

F e d e r a l Open M a r k e t C o m m i t t e e Conference C a l l April 30, 1991

PRESENT: Mr. G r e e n s p a n , C h a i r m a n M r . C o r r i g a n , V i c e Chairman M r . Angel1
M I . Black
Mr. F o r r e s t a l
M r . Keehn
M . Kelley
r M . LaWare
r i M r . Mu11 n s
M . Parry
r Messrs. H o s k i n s . M e l z e r . and S y r o n , A l t e r n a t e Members of t h e F e d e r a l Open M a r k e t Committee

Messrs. B o e h n e . McTeer. and S t e r n , P r e s i d e n t s of t h e F e d e r a l R e s e r v e Banks o f P h i l a d e l p h i a . D a l l a s , and Minneapolis. r e s p e c t i v e l y

Mr. Kohn, S e c r e t a r y a n d E c o n o m i s t
Mr. Coyne. A s s i s t a n t S e c r e t a r y Mr. M a t t i n g l y . G e n e r a l C o u n s e l Mr. P r e l l , E c o n o m i s t M e s s r s . Beebe, L i n d s e y . P r o m i s e l . Siegman. Simpson, and S l i f m a n . A s s o c i a t e Economists M r . S t e r n l i g h t , Manager f o r D o m e s t i c O p e r a t i o n s . S y s t e m Open M a r k e t A c c o u n t Mr. C r o s s , Manager f o r F o r e i g n O p e r a t i o n s , S y s t e m Open M a r k e t A c c o u n t

Mr. Wiles. S e c r e t a r y o f t h e B o a r d . O f f i c e of t h e
S e c r e t a r y , Board o f Governors Mr. E t t i n , D e p u t y D i r e c t o r , D i v i s i o n of R e s e a r c h and S t a t i s t i c s . Board o f G o v e r n o r s Mr. S t o c k t o n . A s s o c i a t e D i r e c t o r , D i v i s i o n o f R e s e a r c h a n d S t a t i s t i c s , B o a r d of G o v e r n o r s M r . W h i t e s e l l . S e c t i o n C h i e f , D i v i s i o n of M o n e t a r y A f f a i r s , Board of Governors M s . Doying, A s s i s t a n t t o the S e c r e t a r y . O f f i c e of t h e S e c r e t a r y . Board o f G o v e r n o r s
M s . M u n n e l l . S e n i o r V i c e P r e s i d e n t . F e d e r a l R e s e r v e Bank of B o s t o n

Transcript of Telephone Conference Call of
April 30, 1991
CHAIRMAN GREENSPAN. Gentlemen. the Board has just voted to lower the discount rate by 1 1 2 percentage point and the Desk will reduce the federal funds rate by only half of it, bringing the funds rate down 2 5 basis points. The reason for this is essentially a reflection of the views that we spelled out at the last FOMC meeting when, as you may recall, the position that I at least was taking on the symmetrical directive was that we were looking for emerging evidence of the turn in the economy. In particular, we expected housing and autos to move and capital goods to hold stable. The evidence at this stage is that the housing markets are clearly turning albeit not at a pronounced rate: nonetheless, they are moving. Auto sales and consumer expenditures are still down. although I still think the odds are that they will pick up. The capital goods markets, however. increasingly are evidencing weakness. I disregard some. but not all, of the anecdotal evidence I keep getting from a lot of my friends in the industrial area: orders in the capital goods and materials areas, as they convey it to me, show no sign of a turn and indeed in many instances are weakening. The last aggregate data that we have on durable goods orders, for example, are quite weak. And the accelerating decline in contracts and permits for nonresidential building strikes me as underscoring the issue of potential emerging weakness in capital goods. In any event, what we are observing is a pattern of incoming data that is running under our forecast and one that suggests that downward revisions will be required. In my judgment the inflationary pressures are easing very considerably. The employment cost index came in pretty much as expected at this particular stage. I would say that the underlying credit and money aggregates are clearly not inflationary. And in my judgment the costs of the insurance of an additional decline in rates of this order of magnitude borders on negligible. I think that the prime rate will move down at this point and it will have some effect. Other elements involved in this decision come out of discussions I’ve been having with some of my European and Japanese colleagues who are part of the G-7. But I might add parenthetically that what we’re discussing now has nothing to do with the G - 7 . During tomorrow’s conference call, which is still on as scheduled, I hope to fill you in. in some considerable detail, on a very interesting G - 7 meeting held on Sunday. However. I have been getting indications--or I should say a little stronger than indications--from our colleagues in Europe specifically that they hope we might find it possible to move rates down largely because they’re running into some really serious troubles in the ERM. They view the upside pressure of the dollar in the last [few] weeks against all European currencies. and against the mark especially, as creating significant problems for them. And obviously it is also undercutting our export potential. especially if Europe is slowing down at the pace that now appears to be the case. In summary. I would say that, in line with the FOMC
discussion on how events might or might not materialize, clearly what
is happening at this stage is a slowing in the rate of decline but
virtually no useful evidence in the order books or in the advance
indicators of activity that suggests we are coming out of this

4/30/91

-2-

[ r e c e s s i o n ] any t i m e i n t h e i m m e d i a t e f u t u r e . T h a t ' s a l l I h a v e o n m y a g e n d a . Does anybody from t h e Board w i s h t o add a n y t h i n g ?
V I C E CHAIRMAN CORRIGAN.

What was t h e v o t e ?

CHAIRMAN GREENSPAN. The v o t e was 4 t o 1. Does somebody h a v e t h e p r e s s r e l e a s e t o r e a d ? J e r r y . t h a t p r e s s r e l e a s e f o r some r e a s o n i s n o t h e r e i n t h e room: w e ' l l g e t i t . Don, why d o n ' t y o u - -

MR. KOHN. I t c i t e s weakness i n t h e i n d u s t r i a l s e c t o r and c a p i t a l g o o d s ; i t c i t e s p r o g r e s s on i n f l a t i o n : and it n o t e s t h a t t h e move i s p a r t l y a c a t c h - u p w i t h p r e v i o u s d e c l i n e s i n r a t e s , which i s a code word f o r s a y i n g t h a t n o t a l l o f i t w i l l be p a s s e d t h r o u g h . Those a r e t h e major elements.

MR. KEEHN. effective?

When w i l l t h i s be announced and when w i l l it b e
I t w i l l be announced m o m e n t a r i l y and

CHAIRMAN GREENSPAN. e f f e c t i v e immediately.

MR. PARRY.

W i l l you s e n d o u t a p r e s s r e l e a s e t o t h e R e s e r v e

Banks?
CHAIRMAN GREENSPAN.

T h a t w i l l be done i m m e d i a t e l y .

MR. H O S K I N S . Could Don Kohn b r i n g u s u p - t o - d a t e on t h e growth p a t h s and add a n y t h i n g on t h e p r o j e c t i o n s ?
MR. KOHN. Yes. We're s e e i n g t h e money s u p p l y s l i g h t l y weaker t h a n we t h o u g h t a t t h e FOMC m e e t i n g . I d o n ' t have a n y u p d a t e s f o r t h i s week, b u t a s o f l a s t week w e saw a b o u t 3 - 1 / 2 p e r c e n t M2 growth i n A p r i l : a t t h e F M m e e t i n g w e had 5 p e r c e n t . And we saw O C a b o u t 1 - 3 / 4 p e r c e n t M3 growth and a t t h e F M m e e t i n g we had 3 - 3 / 4 O C percent f o r A p r i l . S o . b o t h l o o k e d a b i t on t h e weak s i d e f o r A p r i l b u t n o t by v e r y much.

MR. ANGELL. Don, t h e f o u r t h - q u a r t e r a v e r a g e t o t h e end o f A p r i l t h a t you p r o j e c t e d l a s t week was a 4 . 9 p e r c e n t growth r a t e . The m i d p o i n t [of o u r M2 t a r g e t r a n g e f o r t h e y e a r ] i s where?

i s growing midpoint. had a t t h e n o t much.

MR. KOHN. The m i d p o i n t i s 4 - 1 / 2 p e r c e n t : from Q4 t o A p r i l M2 a t a r a t e o f 4 - 3 / 4 p e r c e n t . s o w e ' r e r i g h t around t h e I t ' s n o t much d i f f e r e n t : i t ' s a b o u t i n l i n e w i t h what w e F M m e e t i n g . T h e r e may b e a l i t t l e weakness e m e r g i n g , b u t O C But we had p r o j e c t e d t h i s d e c e l e r a t i o n .

CHAIRMAN GREENSPAN. L e t m e r e a d t o you t h e o p e r a t i v e p r e s s r e l e a s e s t a t e m e n t : "The a c t i o n was t a k e n i n l i g h t of c o n t i n u e d weakness i n economic a c t i v i t y . e s p e c i a l l y i n t h e i n d u s t r i a l and c a p i t a l goods a r e a s . and e v i d e n c e of a b a t i n g i n f l a t i o n a r y p r e s s u r e s . The r e d u c t i o n . i n p a r t , r e a l i g n s t h e d i s c o u n t r a t e w i t h m a r k e t i n t e r e s t r a t e s . " Any f u r t h e r q u e s t i o n s o r comments?
MR. BLACK. M r . Chairman, o u r Bank h a s n o t moved y e t o n t h e d i s c o u n t r a t e . I s u p p o s e we c a n do i t a l l f r o m h e r e t h r o u g h one o f o u r c o l l e a g u e s who i s b a c k a t home. But i s t h e r e any u r g e n c y t o g e t it done t o d a y ?

4130191

MR. ANGELL. I presume that it would not be that dramatic if
you were one day later. It would be up to each Reserve Bank to
determine.
CHAIRMAN GREENSPAN. I don’t know. Don, why don’t you
respond to that? The question is: Should the Reserve Bank presidents
call their banks to get the discount rate [change] done today instead
of tomorrow?
MR. MULLINS. MR. KELLEY.

Is there a problem in delaying it a day?

Is there any problem if they do nothing?

I think it would be helpful if it were

CHAIRMAN GREENSPAN. done today.
MR. KOHN.

Yes. it would be better today-.

CHAIRMAN GREENSPAN. If you can do it today. it would be
helpful.
MR. KOHN. already in.
--although the press release notes which banks are

CHAIRMAN GREENSPAN. Were there five banks in?
MR. KOHN. Five banks, correct.

CHAIRMAN GREENSPAN. Anything else? If there is nothing
else, we’ll reconvene for a conference call tomorrow at 9 : O O a.m.
eastern daylight time.
END OF SESSION