>Minutes of the Federal Open Market Committee 
June 29 - 30, 1999 
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, June 29, 1999, at 2:30 p.m. and continued on Wednesday,
 June 30, 1999, at 9:00 a.m. 
 

Present:  
 Mr. Greenspan, Chairman
Mr. McDonough, Vice Chairman
Mr. Boehne
Mr. Ferguson
Mr. Gramlich
Mr. Kelley
Mr. McTeer
Mr. Meyer
Mr. Moskow
Mr. Stern   
 Messrs. Broaddus, Guynn, Jordan, and Parry, Alternate Members of the
 Federal Open market Committee 

Mr. Hoenig, Ms. Minehan, and Mr. Poole, Presidents of
 the Federal Reserve
 Banks of Kansas City, Boston, and St. Louis respectively 

Mr. Kohn, Secretary and Economist
Mr. Bernard, Deputy Secretary
Ms. Fox, Assistant Secretary
Mr. Gillum, Assistant Secretary
Mr. Mattingly, General Counsel
Mr. Prell, Economist
Ms. Johnson, Economist

Messrs. Alexander, Cecchetti, Hooper, Hunter, Lang,
 Lindsey, Rolnick,
 Rosenblum, 1 Slifman, 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 Simpson, Associate Directors, Divisions 
of Monetary
 Affairs and Research and Statistics respectively, Board of Governors 

Messrs. Porter 2 and Reinhart, Deputy Associate Directors,
 Division of
 Monetary Affairs, Board of Governors 

Mr. Reifschneider, 2 Section Chief, Division of Research
 and Statistics,
 Board of Governors 

Mses. Edwards 3 and Mauskopf, 3 and Messrs. Lebow 3 
and Orphanides, 2
 Senior Economists, Divisions of Monetary Affairs, International Finance,
 Research and Statistics, and Monetary Affairs respectively, Board of Governors 

Ms. Garrett and Mr. Tetlow, 2 Economists, Divisions 
of Monetary Affairs
 and Research and Statistics respectively, Board of Governors 

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

Mr. Barron, First Vice President, Federal Reserve Bank 
of Atlanta 

Messrs. Beebe, Eisenbeis, Goodfriend, Hakkio, Rasche,
 and Sniderman,
 Senior Vice Presidents, Federal Reserve Banks of San Francisco, Atlanta,
 Richmond, Kansas City, St. Louis, and Cleveland respectively 

Mr. Fuhrer and Ms. Perelmuter, Vice Presidents, Federal
 Reserve Banks
 of Boston and New York respectively 

--------------------------------------------------------------------------------
By unanimous vote, the minutes of the meeting of the Federal Open Market
 Committee held on May 18, 1999, 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, and thus no vote was required of the Committee. 

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 May 18, 1999 through
 June 29, 1999. The Committee ratified these transactions by unanimous vote. 

The Committee then turned to a discussion of the economic and 
financial outlook, the ranges for the growth of money and debt
 in 1999 and 2000, and the implementation of monetary policy over
 the intermeeting period ahead. 

The information reviewed at this meeting suggested that economic 
activity continued to expand vigorously, though at a somewhat slower
 pace than earlier in the year. Consumer outlays and construction
 spending had decelerated somewhat after growing very rapidly in the
 first quarter, but the deceleration had been partly offset by a 
step-up in business purchases of durable equipment and a smaller 
decline in net exports. Labor markets remained very tight, and
 recent wage and price increases had been a little larger on 
balance; nonetheless, longer-term inflation trends continued 
generally favorable in an environment of robust improvements
 in productivity. 

Nonfarm payroll employment rose substantially further on
 balance in April and May, but the increase was a little
 below the rate for the first quarter. Growth in employment
 remained robust in the service-producing sector in the
 April-May period, but the number of jobs fell in the 
goods-producing sector: payrolls in manufacturing and 
mining continued to contract, and construction employment 
changed little on net after a sizable first-quarter increase.
 The civilian unemployment rate edged down in May to 4.2
 percent, matching its low for the year and for the period
 since 1970. 

Industrial production advanced somewhat further in May
 despite a sharp weather-related drop in utility services
 and continued sluggishness in mining activity. Manufacturing
 output registered another substantial advance, reflecting a 
surge in the production of motor vehicles and parts and persisting
 strength in the manufacture of many other durable goods. 
The output of nondurable goods posted another small increase
 in May, with the gains being fairly broadly based. Reflecting
 the stepped-up pace of manufacturing, the rate of utilization
 of capacity edged higher in May but continued to be below its
 long-run average level. 

Growth of consumer spending appeared to have slowed somewhat
 from its extraordinary pace of the first quarter; nonetheless,
 the underlying trend in consumption remained strongly upward,
 with household income and wealth continuing to expand rapidly 
and consumer sentiment remaining very high. Total retail sales
 rose substantially in May following large increases on average
 earlier in the year. Gains in retail sales were relatively 
widespread, with outsized advances in the food, general merchandise,
 and durable goods categories. 

Housing demand remained robust in recent months despite the
 recent rise in mortgage rates. However, builders were faced 
with shortages of workers and some materials and were hard-pressed
 to keep pace with the demand for new homes. As a result, 
both single-family and multifamily housing starts fell somewhat
 on balance over April and May. 

Information on shipments of nondefense capital goods in April 
and May suggested that business investment in durable equipment
 picked up substantially in the second quarter from the already
 brisk pace of the first quarter. Shipments of high-tech equipment,
 notably computers, were particularly robust over the April-May period.
 In addition, business demand for motor vehicles continued to be 
strong, particularly for medium and heavy trucks for which the backlog 
of unfilled orders was still quite large. By contrast, nonresidential
 construction activity weakened in April (latest data) after a rise
 in the first quarter, and available information on contracts for
 future construction pointed to sluggish building activity for 
some period ahead. 

Business inventory accumulation slowed a bit in April from the
relatively subdued first-quarter pace, and total business stocks
 remained at fairly low levels in relation to sales. In manufacturing,
 inventories continued to decline in April, and the aggregate
 inventory-shipment ratio for this sector stayed at the bottom 
of its range for the past twelve months. Wholesale stocks rose 
in April at about their average pace for the early months of 
the year, and the ratio of stocks to sales in this sector 
stayed in the lower end of its range for the past year.
 Retail inventory accumulation slowed in April after a
 relatively large gain in the first quarter, and the aggregate
 inventory-sales ratio also remained in the lower end of its
 range for the past twelve months. 

The nominal deficit on U.S. trade in goods and services
 widened somewhat in April from its first-quarter average.
 The value of exports increased slightly from its first-quarter
 average, primarily reflecting greater exports of computers 
and semiconductors, motor vehicles, and industrial supplies.
 The value of imports rose somewhat more, principally owing to
 larger imports of oil. The available information suggested that
 economic activity had picked up somewhat on balance in the major
 foreign industrial countries. The Japanese economy was reported 
to have expanded markedly in the first quarter, recording its first
 quarterly rise in the past year and a half. In Europe, economic 
growth rebounded in Germany but slowed somewhat in France and the
 United Kingdom. Signs of an improved economic performance also 
were evident in Latin America and Southeast Asia. 

The consumer price index was unchanged in May following a sizable 
increase in April that was associated in part with a jump in energy
 prices. Excluding the effects of movements in food and energy
 prices, though, consumer inflation was a little higher in the
 April-May period than in the first quarter; for the twelve 
months ended in May, core consumer prices rose slightly less 
than in the previous twelve-month period. Producer prices of 
finished goods also were affected by the volatility of energy 
prices in April and May, but core producer prices recorded only
 a small rise in each month. However, for the twelve months 
ended in May, core producer inflation was up noticeably
 compared with the year-earlier period, owing in important
 part to sharp increases in the prices of tobacco products.
 With regard to labor costs, average hourly earnings grew a
 little faster in May than in April, but they rose less in 
the twelve months ended in May than in the previous twelve-month
 period. 

At its meeting on May 18, 1999, the Committee adopted a directive 
that called for maintaining conditions in reserve markets that would
 be consistent with an unchanged federal funds rate of about 4-3/4 
percent, but the directive also contained a bias toward a possible
 tightening of policy. The members' concerns about inflation had
 increased appreciably since the meeting in late March, but the
 members nonetheless felt that the current stance of policy could 
remain consistent with subdued inflation for some time, especially
 if productivity gains continued robust and, as projected, the 
growth of aggregate demand moderated somewhat in the months ahead. 

Open market operations were directed throughout the intermeeting
 period toward maintaining the federal funds rate at around 4-3/4 
percent, and the average rate for the period was very close to the
 Committee's target. Other interest rates rose somewhat over the
 period since the May meeting in response to the combined effects 
of the Committee's announcement of an asymmetric directive, economic
 data that generally were stronger than expected, and reported comments
 of Federal Reserve officials. With the market effects of higher 
interest rates roughly offset by brighter second-quarter earnings
 prospects, broad indexes of share prices in equity markets changed 
little on balance over the intermeeting period. 

In foreign exchange markets, the trade-weighted value of 
the dollar edged up over the intermeeting period in relation
 to the currencies of a broad group of important U.S. trading 
partners. The dollar appreciated against the euro, partly reflecting
 the contrast between continuing robust growth in the United States
 and generally sub-par activity in euro-area economies. The dollar
 also rose against the pound in association with slower growth in 
the United Kingdom and a reduction in the Bank of England's repo
 rate. By contrast, the dollar weakened against the yen as yields
 on Japanese government debt increased sharply relative to rates 
on U.S. Treasury securities. Among other important trading partners,
 the dollar fell against the currencies of many emerging Asian
 economies, whose financial markets had generally improved, but
 appreciated in terms of the Brazilian real in association with
 periods of particular stress in Brazil's financial markets. 

After recording sizable increases in April that apparently were
 associated with tax-related buildups in liquid accounts, the 
growth of M2 and M3 slowed sharply in May, as tax payments cleared,
 and appeared to have remained moderate in June. The expansion of
 these aggregates also seemed to have been damped in recent months
 by the rise in their opportunity costs associated with earlier
 increases in interest rates. M2 was estimated to have increased
 for the year through June at a rate somewhat above the Committee's
 annual range and M3 at a rate near the upper end of its range. 
Although growth of total domestic nonfinancial debt had moderated 
a little recently, it continued to expand at a pace somewhat above 
the middle of its range. 

The staff forecast prepared for this meeting suggested that 
the expansion would gradually moderate to a rate commensurate 
with the growth of the economy's estimated potential. The lagged 
effects of the earlier rise in the foreign exchange value of the 
dollar were expected to place continuing, though diminishing, restraint
 on the demand for U.S. exports for some period ahead. The increase of
 private final demand would be restrained by the anticipated waning of 
positive wealth effects associated with earlier large increases in equity
 prices; by slower growth of spending on consumer durables, houses,
 and business equipment in the wake of the prolonged buildup in the stocks 
of these items; and by the rise that had already occurred in market 
interest rates, especially for intermediate and longer maturities, in
 the expectation that higher interest rates would be needed to achieve
 a better balance between aggregate demand and aggregate supply. Price 
inflation was projected to rise somewhat over the projection horizon,
 in large part as a result of some upturn in import prices and a slight
 firming of gains in nominal labor compensation that would not be fully
 offset by rising productivity. 

In the Committee's discussion of the outlook for economic activity 
and inflation, members commented that the incoming information 
continued to suggest a vigorous expansion but also subdued inflation
 despite very tight labor markets. Growth in aggregate demand was
 estimated to have slowed somewhat in the second quarter from outsized
 advances in the two previous quarters, largely as a result of less
 ebullient though still robust growth in consumer spending. The members
 questioned, however, whether the limited indications of some moderation
 in the expansion in recent months were a harbinger of a more sustainable
 pace of economic activity that would be consistent with the economy's
 estimated output potential and low inflation. Indeed, in the absence of
 some policy firming most of the members saw tightening labor markets and
 an updrift in measured inflation as a significant risk. They acknowledged 
that the timing and extent of a potential rise in inflation were subject to
 considerable uncertainty. In particular, as the experience of recent years
 had amply demonstrated, strengthening advances in productivity had reduced
 increases in unit costs to very low or even slightly negative levels despite
 growing scarcities of labor and some rise in the growth of labor compensation
 and in profit margins. Rising productivity growth had not been sufficient,
 however, to keep labor markets from tightening, given the extraordinary
 strength in final U.S. demands, which if continued would show through
 into higher inflation. Moreover, it remained unclear how long faster
 gains in productivity could continue to offset increases in labor costs
 and avert an intensification of price inflation. 

In keeping with the practice at meetings just before the Federal
 Reserve's semiannual monetary policy report to the Congress and
 the Chairman's associated testimony, the members of the Committee 
and the Federal Reserve Bank presidents not currently serving as 
members had provided individual projections of the growth in nominal 
and real GDP, the rate of unemployment, and the rate of inflation for
 the years 1999 and 2000. With regard to the growth of nominal GDP,
 most of the forecasts were in ranges of 5 to 5-1/2 percent for 1999 
as a whole and 4 to 5 percent for 2000. The forecasts of the rate of 
expansion in real GDP for 1999 had a central tendency of 3-1/2 to 3-3/4
 percent and for 2000 they were centered on a range of 2-1/2 to 3 percent,
 below the increases experienced over the last three years. The civilian
 rate of unemployment associated with these forecasts had central tendencies
 of 4 to 4-1/4 percent in the fourth quarter of 1999 and 4-1/4 to 4-1/2 percent
 in the fourth quarter of 2000. Projections of the rate of inflation, as measured
 by the consumer price index, pointed to an appreciable increase in 1999, largely
reflecting a swing in the price of energy, and little further change in 2000; 
specifically, the projections converged on CPI inflation rates of 2-1/4 to 2-1/2
 percent in 1999 and 2 to 2-1/2 percent in 2000. The members anticipated that
 the effects of the century date change on economic activity would, on balance,
 be limited or negligible over the forecast period, possibly adding somewhat
 to growth later this year and temporarily reducing growth early next year. 

Key factors underlying the members' forecasts of appreciable
 moderation in the
 trend of real GDP growth included a waning of the financial stimulus that had 
boosted domestic demand in recent years and the buildup of stocks of consumer
 durables, housing, and business equipment after an extended period of rapidly 
expanding purchases. The members acknowledged that the signs of slower growth 
in household and business spending were still quite limited. In the household 
sector, further substantial increases in income and financial wealth and high
levels of consumer confidence had fostered continued robust growth in consumer
 spending in recent months, but apart from exceptional strength in purchases 
of motor vehicles, growth in real spending for durable consumer goods appeared
 to have moderated recently from a very rapid pace earlier in the year. How long 
the favorable factors that continued to stimulate substantial growth in consumer
 expenditures would persist was uncertain, notably with regard to the outlook for 
stock market prices and their effects on consumer resources and willingness to spend.
 The stimulus to household spending from rapidly rising stock market wealth obviously 
would diminish should prices in the stock market tend to level out as many expected.
 In that event, growth in consumer spending might be expected to moderate to a pace
more in line with the expansion in disposable incomes. 

Business investment spending, which featured exceptional
 growth in expenditures for
 producers' durable equipment, appeared to have picked up in recent months from an 
already rapid pace earlier in the year. Nonetheless, business firms were expected to 
trim the growth in their outlays for equipment as forecasts of moderating expansion in 
aggregate demand materialized. Such a cutback would be abetted to an extent by the somewhat
 higher levels of market interest rates that business borrowers now faced. While growth in 
spending for high-technology equipment and related products probably would remain rapid
 in light of the accelerated pace of innovations and declining prices for such equipment,
 a significant deceleration or slowdown in spending for other types of capital equipment
 seemed likely under projected economic conditions, especially given currently reduced 
rates of capacity utilization in many manufacturing industries. In the nonresidential 
construction sector, business expenditures were expected to remain near current levels,
 reflecting ongoing strength in many parts of the country but also some signs of
 overbuilding in other areas. 

A number of recent indicators suggested that on a seasonally 
adjusted basis residential
 building activity had slowed a bit in the second quarter from an elevated level earlier
 in the year. However, homebuilding apparently was held back to some extent recently
 by scarcities of labor and some building supplies, and sizable backlogs evidently 
had built up. Looking ahead, the members expected residential construction expenditures
 to hold near current levels in the second half of this year as backlogs were worked
 lower, but they anticipated some softening subsequently. Factors bearing on this
 outlook included the large additions to the stock of housing in recent years 
and to some extent the backup that had occurred in mortgage rates. At some point
 the higher financing costs would begin to show through to housing demand. 

The available information indicated that U.S. exports of goods
 and services 
had declined on balance thus far this year, while imports had posted very strong
 gains in line with continuing strength in U.S. domestic spending. However,
 improving economies in a number of the nation's important trading partners
and the slower expansion forecast for the U.S. economy were expected to have a
favorable effect on exports and to moderate increases in imports over the next 
several quarters. Indeed, recent data suggested that U.S. exports had advanced 
slightly after posting sizable declines during the first quarter while imports
had continued to grow strongly. On net, the members anticipated that the nation's 
trade balance would continue to worsen, although more slowly and with a less
 negative effect on the U.S. economy over the forecast period. 

Members commented that inflation as reflected in a wide range
 of statistical 
measures and anecdotal reports remained remarkably subdued despite the persisting
 strength of the expansion and very tight labor markets across the nation.
 It seemed likely that rising productivity, which appeared to have accelerated
 markedly of late, accounted for much of the surprising combination of rapid 
growth in economic activity and low inflation. In particular, accelerating labor 
productivity clearly had curbed the rise in unit labor costs and damped pressures 
on prices. Very recent data on underlying productivity trends were not yet available,
 but the fact that profit forecasts had continued to be marked up suggested that 
it might still be accelerating and holding down costs. Such increases in productivity
 along with slack in foreign economies contributed to the very strong competition in
 most markets that was continuing generally to suppress efforts to raise prices. 
Other factors constraining inflation cited by the members included the ample availability 
of capacity in most industries and the declines that had occurred in non-oil import prices.
 Despite these favorable developments, most members had become increasingly worried 
about the risks of an overheating economy and rising inflation over time. 

The concerns about the outlook for inflation tended to focus
 on the risk that,
 in the absence of an appreciable moderation in overall demands, very tight labor
 markets would at some point foster significantly faster increases in labor 
compensation that could no longer be offset by stronger productivity growth.
 Indeed, at recent rates of increase in output, labor utilization was likely
 to continue to rise, adding to pressures on costs. The higher labor cost 
increases would in turn generate more rapid price inflation. Members noted
 in this regard that the trend in average hourly earnings appeared to have 
tilted up in recent months. While this relatively recent development was not
 yet conclusive evidence of accelerating labor costs, especially without further 
information about productivity, anecdotal reports of faster increases in labor
 compensation also appeared to have multiplied. In addition, improving economic
conditions abroad, among other factors, had induced a firming in oil and other
 commodity prices, and had supported the foreign exchange value of other currencies 
relative to the dollar. As a consequence, the declines in commodity and other import
 prices that had helped to suppress inflation and inflation expectations over the
 last two years were not likely to be repeated. Members acknowledged that the prospects
 for rising inflation, including the potential timing of an acceleration, if any, 
remained uncertain, given the questions surrounding both the ongoing strength of 
aggregate demand and the outlook for productivity, but they viewed the risks of
 added price pressures as having risen further. 

In keeping with the requirements of the Full Employment and 
Balanced Growth Act 
of 1978 (the Humphrey-Hawkins Act), the Committee reviewed at this meeting the 
ranges for growth of the monetary and debt ranges that it had established in February
 for 1999 and it set tentative ranges for those aggregates for 2000. The current ranges
 approved in February for the period from the fourth quarter of 1998 to the fourth quarter
 of 1999, which were unchanged from those for the last several years, included growth 
of 1 to 5 percent for M2 and 2 to 6 percent for M3. An unchanged range of 3 to 7 percent
 also was set in February for growth of total domestic nonfinancial debt in 1999. 

All the members favored retaining the current ranges for this
 year and extending 
them on a provisional basis to 2000. The members recognized that the growth of
 both M2 and M3, while decelerating markedly from 1998, might still exceed the
 ranges for the current year and be near the upper ends of the ranges in 2000,
 assuming economic and financial conditions approximating their current expectations.
 However, as had been the case for many years, the members remained concerned that
 forecasts of money growth were still subject to a wide range of error in terms of
 the anticipated relationships between money growth and aggregate economic performance. 
Accordingly, they agreed that those ranges should not reflect or be centered on forecasts
 of money growth under projected economic and financial conditions, but should be regarded 
as anchors or benchmarks for money growth that would be associated with approximate price
 stability and sustained economic expansion, assuming behavior of velocity in line with 
historical experience. A reaffirmation of those ranges for 1999 and their extension to
 2000 would therefore underscore the Committee's commitment to achieving and maintaining
 price stability over time and thereby fostering maximum sustainable economic growth. 
It was noted during this discussion that the apparent pickup in productivity, if it persisted, 
suggested that somewhat higher ranges than those adopted in recent years might more accurately 
reflect money growth under conditions of price stability and historically typical velocity 
trends. However, the members agreed that the marked degree of uncertainty in the outlook
 for productivity as well as velocity argued against any increases in the ranges at this point. 

The Committee members were unanimously in favor of retaining the
 current range of 3 to 7 
percent for growth of total domestic nonfinancial debt in 1999 and extending that range 
on a provisional basis to 2000. They took account of a staff projection indicating that 
growth of the debt aggregate was likely to be around the middle of this range, perhaps
 somewhat above in 1999 and somewhat below in 2000. Unlike the ranges for the monetary
 aggregates, selection of the range for debt did not reflect a price stability and 
sustainable economic growth rationale but was based on forecasts of actual growth in this
 measure. 

At the conclusion of this discussion, the Committee voted to 
reaffirm the ranges for 
growth of M2, M3, and total domestic nonfinancial debt that it had established in 
February for 1999 and to extend these ranges on a tentative basis to 2000. In keeping 
with its usual procedures under the Humphrey-Hawkins Act, the Committee would review 
its preliminary ranges for 2000 early next year. Accordingly, the Committee voted to
 incorporate the following statement regarding the 1999 and 2000 ranges in its domestic
 policy directive: 

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 this meeting 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 1998 to the fourth quarter of 1999.
 The range for growth of total domestic nonfinancial debt was maintained at 3 to 7
 percent for the year. For 2000, 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 1999 to the fourth quarter of 2000. 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. 
Votes for this action: Messrs. Greenspan, McDonough Boehne, Ferguson, Gramlich,
 McTeer, Meyers, Moskow, Kelley, and Stern.
Votes against this action: None.
Absent and not voting: Ms. Rivlin 

In the Committee's discussion of policy for the intermeeting 
period ahead, all
but one member supported a proposal for a slight tightening of conditions in
 reserve markets consistent with an increase of � percentage point in the federal
 funds rate to an average of around 5 percent. In the view of most members, such 
a policy move represented a desirable and cautious preemptive step in the direction
 of reducing what they saw as a significant risk of rising inflation. While current
 indications of accelerating inflation were quite limited, the economy had been expanding
 rapidly enough to put added pressure on labor markets over time, and many members 
expressed growing concern that, given the current stance of monetary policy, the 
persisting strength of domestic demand augmented by increasing demand from abroad 
would show through at some point to even tighter labor markets and higher inflation,
 which would impinge over time on the economy's ability to realize its full growth
 potential. In these circumstances, a small preemptive move at this time would provide
 a degree of insurance against worsening inflation later. Members commented that the
 action in question would reverse a portion of the easing actions implemented during
 the fall of 1998 that had been undertaken in part to protect against the possibility 
that unsettled global markets would place even greater constraints on foreign and domestic
 economic activity than were then evident. As financial markets and foreign economies 
stabilized and recovered, that added protection was no longer required and policy needed
 to move to a less accommodative stance to promote sustainable growth in spending. One
 member did not agree that any tightening of policy was necessary to contain inflation,
 given the persistence of low inflation, accelerating productivity, and what in his
 view was an already sufficiently restrictive monetary policy stance. 

The members were divided over whether to retain the current 
asymmetrical directive
 tilted toward restraint or to adopt a symmetrical directive in conjunction with the 
contemplated tightening action. A majority endorsed a proposal to shift to a symmetrical 
directive. They agreed that following today's limited policy move the risks would still 
remain tilted toward rising inflation, and they expected that the announcement of a change 
in policy shortly after the meeting would include a reference to the Committee's ongoing concerns 
in that regard. But in light of the marked degree of uncertainty relating to the extent and timing
 of prospective inflationary pressures, they believed that further firming of policy might not 
be necessary in the near term and in any case would depend importantly on future developments. 
Some of these members were concerned that retention of asymmetry might be interpreted as an 
indication that the Committee was relatively certain that it would need to take further
 tightening action fairly soon, a view that tended to be reinforced by the behavior of
 expectations in the period after the announcement of a shift to asymmetry at the May meeting. 

Members who preferred to retain an asymmetrical directive agreed that,
 although there was
 little likelihood of a further policy change during the intermeeting period, such a
 directive was the best way to convey their concerns about the risks of rising inflation
 and the potential need for policy tightening over time. A number of those in favor of
 asymmetry were concerned that a symmetrical directive would not capture the Committee's 
thinking with regard to the most likely policy course over an extended period of time and
 could foster the misleading conclusion that the Committee no longer believed a further 
adjustment to policy might be warranted at some point later this year. They saw the odds
 as reasonably high that further tightening would be needed before the end of the year 
to gain adequate assurance that inflation would be contained. Despite their differing 
preferences, all the members who supported a policy tightening move also indicated
 that they could accept a symmetrical directive because the announcement to be released 
after this meeting along with the Chairman's Humphrey-Hawkins testimony during the 
latter part of July could serve to correct possible misinterpretations. 

At the conclusion of this discussion, the Committee voted to
 authorize and direct the
 Federal Reserve Bank of New York, until it was instructed otherwise, to execute 
transactions in the System Account in accordance with the following domestic policy directive: 

The information reviewed at this meeting suggests continued 
vigorous expansion in economic
 activity. Nonfarm payroll employment has increased at a relatively rapid pace in recent
 months and the civilian unemployment rate, at 4.2 percent in May, matched its low for the
 year. Manufacturing output rose substantially further in May. Total retail sales increased
 briskly last month after recording large gains on average earlier in the year. Housing activity
 has remained robust in recent months. Available indicators suggest that business capital spending,
 especially for information technology, has accelerated this spring. The nominal deficit on U.S.
 trade in goods and services widened somewhat in April from its first-quarter average. Consumer 
price inflation was up somewhat on balance in April and May, boosted by a sharp increase in
 energy prices; improving productivity has held down increases in unit labor costs despite very
 tight labor markets. 
Interest rates have risen somewhat since the meeting on May 18, 1999. Key measures of share prices
 in equity markets are unchanged to somewhat lower on balance over the intermeeting period. 
In foreign exchange markets, the trade-weighted value of the dollar has changed little over
 the period in relation to the currencies of a broad group of important U.S. trading partners. 

After recording sizable increases in April, apparently owing to a 
tax- related buildup in
 liquid accounts, growth of M2 and M3 slowed in May as tax payments cleared and appears to 
have remained moderate in June. For the year through June, M2 is estimated to have increased
 at a rate somewhat above the Committee's annual range and M3 at a rate near the upper end
 of its range. Total domestic nonfinancial debt has continued to expand at a pace somewhat
 above the middle of its range. 

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 this meeting 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 1998 to the fourth quarter of 1999. The range for growth of total
 domestic nonfinancial debt was maintained at 3 to 7 percent for the year. For 2000,
 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 1999 to the fourth
 quarter of 2000. 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. 

To promote the Committee's long-run objectives of price 
stability and sustainable 
economic growth, the Committee in the immediate future seeks conditions in reserve 
markets consistent with increasing the federal funds rate to an average of around
 5 percent. In view of the evidence currently available, the Committee believes
 that prospective developments are equally likely to warrant an increase or 
a decrease in the federal funds rate operating objective during the intermeeting period. 

Votes for this action: Messrs. Greenspan, McDonough, Boehne,
 Ferguson, Gramlich,
 Meyers, Moskow, Kelley, and Stern.
Vote against this action: Mr. McTeer.
Absent and not voting: Ms. Rivlin 

Mr. McTeer dissented because he believed that tightening was
 unnecessary to
 contain inflation. He noted that most measures of current inflation remain low,
 and he saw few signs of inflation in the pipeline. Conditions that called for a 
preemptive tightening in 1994--rapidly rising commodity prices and real short-term
interest rates near zero--are not present today. While money growth has been rapid 
by historical standards, market-based indicators of monetary policy suggest sufficient
 restraint. Except for oil, most sensitive commodity prices have risen only slightly
 after years of decline, the dollar remains strong, real short-term interest rates are
 near historical norms, and productivity growth has accelerated in recent quarters.
 Mr. McTeer does not believe that rapid growth based on new technology, rising 
productivity, and other supply-side factors is inflationary, especially in the 
current global environment. He would have preferred to continue to test the growth limits
 of the new economy. 

By notation vote completed on July 14, 1999, available members
 of the Committee 
voted unanimously to delegate responsibility to Mr. Gramlich and in his absence
 to Mr. Ferguson for making decisions on appeals of denials by the secretary of 
the Committee for access to Committee records. This action was taken in keeping 
with the provisions of 271.4(d) of the Committee's Rules Regarding Availability of Information. 

Votes for this action: Messrs. Greenspan, McDonough, Boehne,
 Ferguson, Gramlich,
 Meyers, Moskow, Kelley, and Stern.
Votes against this action: None.
Not voting: Mr. McTeer and Ms. Rivlin 
It was agreed that the next meeting of the Committee would be held on Tuesday,
 August 24, 1999. 

The meeting adjourned at 11:45 a.m. 

Donald L. Kohn
Secretary 
 

 
--------------------------------------------------------------------------------

Footnotes 

1 Attended Tuesday's session only. 

2 Attended portions of meeting relating to the discussion
 of the policy implications of 
uncertainty about key economic variables. 

3 Attended portions of meeting relating to the Committee's
 review of the economic outlook
 and consideration of its monetary and debt ranges for 1999 and 2000.