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 Call September 1 3 . 1991

PRESENT: Mr. G r e e n s p a n , C h a i r m a n Mr. C o r r i g a n . Vice C h a i r m a n Mr. A n g e l 1 Mr. B l a c k Mr. F o r r e s t a l M r . Keehn Mr. LaWare Mr. M u l l i n s

Messrs. G u f f e y . H o s k i n s . M e l z e r , a n d S y r o n . A l t e r n a t e Members o f 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 , Dallas. and Minneapolis, r e s p e c t i v e l y
M r . Kohn. S e c r e t a r y and E c o n o m i s t
Mr. B e r n a r d , D e p u t y S e c r e t a r y
Mr. C o y n e , A s s i s t a n t S e c r e t a r y

Messrs. B e e b e , L i n d s e y . P r o m i s e l . S i e g m a n , Simpson, Slifman, Associate Economists
Mr. 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 o f R e s e a r c h and S t a t i s t i c s . Board of Governors 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 and S t a t i s t i c s . Board o f Governors Ms. L o w , Open M a r k e t S e c r e t a r i a t A s s i s t a n t , D i v i s i o n of Monetary A f f a i r s . Board of Governors
Messrs. M o n h o l l o n , O l t m a n . a n d Thomson. F i r s t Vice P r e s i d e n t s , F e d e r a l R e s e r v e B a n k s of R i c h m o n d , N e w Y o r k . and S a n F r a n c i s c o . respectively
Mr. H o e n i g . 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 K a n s a s C i t y

Transcript of Conference Call of
September 1 3 , 1991
MR. BERNARD. Good morning, everyone. This is Normand Bernard at the Board. I’d like to run through the attendance very quickly. Here at the Board, all o f the Board members except for Governor Kelley and also Presidents Corrigan. Black, and Forrestal are in attendance. And representing the San Francisco Bank, Mr. Thomson is here at the Board. [Secretary’s note: Mr. Bernard then called the roll to determine attendance at the Reserve Banks.] CHAIRMAN GREENSPAN. Good morning. everyone. I just want to read to you a press release, which the Board is releasing shortly. “The Federal Reserve Board today announced a reduction in the discount rate from 5 - 1 / 2 to 5 percent. The change is effective immediately. The action was taken in light of weakness in the money and credit aggregates, the improving inflation environment. and concerns about the ongoing strength of the economic expansion. The reduction. in part, realigns the discount rate with market interest rates. In taking the action, the Board voted on requests submitted by the boards of directors of the Federal Reserve Banks of Boston, Philadelphia. Cleveland, Atlanta. Chicago, Minneapolis, and Dallas. The discount rate is the interest rate that is charged depository institutions when they borrow from their District Federal Reserve Banks.” The data that came out this morning I assume everyone is
familiar with. Larry Slifman or Dave Stockton, maybe you ought to
take a minute and quickly review what the numbers are.
MR. SLIFMAN. First of all, the total Consumer Price Index was up 0.2 percent and, excluding food and energy, the CPI was up 0 . 4 percent. One of the big players there was the perennial problem with college tuition at this time of the year. If we were to exclude the college tuition--1 haven’t actually done the calculation--1would suspect that the core CPI would have been up more like 0.3 percent. In terms of the retail sales data that we got this morning. total retail sales were down 0.7 percent. The total excluding the automotive group was down 0.2 percent. However, we did get an upward revision to that grouping--the total excluding automotives--for the month of July. I haven’t actually done the precise calculation yet but I would suspect that on balance the level of retail sales in August was probably about in line with what the staff had been anticipating or maybe even a tad stronger. CHAIRMAN GREENSPAN. There was a downward revision in June.
MR. SLIFMAN. That I don’t have.
CHAIRMAN GREENSPAN. MR. SLIFMAN. It’s 0.2 percent.

You have more information than I do!

CHAIRMAN GREENSPAN. So. you’ll find, I think that it’s probably even or a shade under. MR. SLIFMAN. Okay, a shade under.

9/13/91

-2-

CHAIRMAN GREENSPAN. S o , i t ’ s n o t s i g n i f i c a n t l y d i f f e r e n t on t h e c o n t r o l g r o u p . I would s a y .
MR. SLIFMAN. B a s i c a l l y , t h a t ’ s t h e o n l y i n f o r m a t i o n t h a t we’ve b e e n a b l e t o g e t . W h a v e n ’ t a c t u a l l y g o t t e n t h e p r e s s r e l e a s e e on t h e r e t a i l s a l e s d a t a s o we d o n ’ t h a v e t h e f u l l breakdown y e t . CHAIRMAN GREENSPAN. Gentlemen. i n l i g h t o f t h i s I would p r o p o s e t h a t we a l l o w 25 b a s i s p o i n t s t o show t h r o u g h i n t h e f u n d s r a t e . I would s o l i c i t comments from members o f t h e F M and t h e O C presidents.

MR. KEEHN. T h i s i s S i Keehn. y o u r recommendation, M r . Chairman.
M R . GUFFEY. MR. STERN.
MR.

I would c e r t a i n l y c o n c u r w i t h

Roger Guffey. Gary S t e r n . Syron.

I would a l s o .

T h a t s o u n d s f i n e t o me.

SYRON.

I agree.

MR. BOEHNE.

Sounds good. Okay.

CHAIRMAN GREENSPAN. f u r t h e r comments?
MR. BOEHNE.

Are t h e r e a n y q u e s t i o n s o r a n y

What was t h e v o t e of t h e Board? Unanimous.

CHAIRMAN GREENSPAN.
MR. BOEHNE.

How many R e s e r v e Banks were i n ? Eight?

CHAIRMAN GREENSPAN.

MR. COYNE.

Seven. Seven.

CHAIRMAN GREENSPAN.
MR. BOEHNE.

Thank y o u .

M R . MELZER. A l a n , t h i s i s Tom M e l z e r . I certainly agree w i t h t h e a c t i o n on t h e d i s c o u n t r a t e . And t h e a c t i o n h a v i n g been t a k e n . a showing t h r o u g h t o t h e f u n d s r a t e o u g h t t o be a l l o w e d . I n a s e n s e . w e almost have t o . I must s a y t h a t i n a l o n g - t e r m c o n t e x t , I w o r r y a l i t t l e a b o u t r e a c t i n g t o c u r r e n t numbers on t h e r e a l economy. I t j u s t seems t o me t h a t a t a t u r n i n g p o i n t , w e ’ r e g o i n g t o s e e some numbers t h a t d o n ’ t l o o k t o o good a n d . i n e f f e c t . w e ’ r e r e a c t i n g t o bad numbers. I s i m p l y t h i n k t h i s e x p o s e s us t o t h e same s o r t o f m i s t a k e s t h a t h i s t o r i c a l l y were made i n m o n e t a r y p o l i c y a r o u n d t u r n i n g p o i n t s . I h a v e somewhat o f a problem a b o u t i t b e c a u s e I t h i n k we’ve [movedl q u i t e g e n e r o u s l y o v e r t h e l a s t t h r e e o r f o u r y e a r s and g o i n g i n t o t h i s r e c e s s i o n . And [ u n i n t e l l i g i b l e ] need t o . The o t h e r t h i n g t h a t t r o u b l e s m e even more i n a s e n s e i s t h e i d e a - - a n d t h i s i s s o r t of t h e m e n t a l i t y o f t h e m a r k e t - - t h a t good p r i c e numbers now g i v e u s room t o move t h e d i s c o u n t r a t e down. P r o b a b l y i n a n e x p e c t a n t s e n s e t h e y d o . b u t what we do w i t h m o n e t a r y p o l i c y r i g h t now, o f c o u r s e , w o n ’ t be r e f l e c t e d i n p r i c e s f o r a n o t h e r c o u p l e o f y e a r s . And j u s t l o o k i n g down t h e r o a d , i f we f i n d i n r e t r o s p e c t t h a t we a r e o v e r d o i n g i t now,

9/13/91

-3-

it seems to me that we’re going to be in a very difficult environment over the next year to take the proper steps to reverse that. S o . as I say, I agree with 25 basis points showing through but I just want to express my concerns, if you will, about the longer-term view. CHAIRMAN GREENSPAN. Tom, I think you’re raising an important question. I would say were it not for the fact that we are seeing a very significant financial contraction both on the assets side and the liabilities side of the intermediaries, as well as in net funds raised, I don’t think we could be sufficiently confident that the inflationary pressures are being subdued. I don’t think we are reacting to--hopefully we aren’t. at least--short-termeconomic events because if the credit aggregates and money supply were on track, there is nothing in the data that have come out in the past several days that would strike me as reason to be taking any action. S o I think fundamentally we are responding to the financial system. And, hopefully, we won’t fall into the abyss. which we’ve done s o many times in the past, and which I think you correctly caution us against. MR. MELZER. Thank you, Alan.
Any further comments?
If not, thank you

CHAIRMAN GREENSPAN. very much gentlemen.

MR. BOEHNE. When is the announcement going to be made? CHAIRMAN GREENSPAN. Sometime before 9 : 3 0 a.m.

MR. BOEHNE. Thank you. END OF SESSION