[Federal Register Volume 63, Number 142 (Friday, July 24, 1998)]
[Notices]
[Pages 39876-39877]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-19710]


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FEDERAL RESERVE SYSTEM


Federal Open Market Committee; Domestic Policy Directive of May 
19, 1998.

    In accordance with Sec.  271.5 of its rules regarding availability 
of information (12 CFR part 271), there is set forth below the domestic 
policy directive issued by the Federal Open Market Committee at its 
meeting held on May 19, 1998.\1\ The directive was issued to the 
Federal Reserve Bank of New York as follows:
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    \1\ Copies of the Minutes of the Federal Open Market Committee 
meeting of May 19, 1998, which include the domestic policy directive 
issued at that meeting, are available upon request to the Board of 
Governors of the Federal Reserve System, Washington, D.C. 20551. The 
minutes are published in the Federal Reserve Bulletin and in the 
Board's annual report.
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    The information reviewed at this meeting suggests that economic 
activity has continued to grow rapidly in 1998. Nonfarm payroll 
employment registered another substantial increase in April after a 
slight decline in March, and the civilian unemployment rate fell to 4.3 
percent in April. However, factory output has changed little on balance 
in recent months. Retail sales grew appreciably in April, and consumer 
spending as a whole has been very strong this year. Residential sales 
and construction also have strengthened this year. Business fixed 
investment rebounded sharply in the first quarter after having declined 
slightly in the fourth quarter, and available indicators point to 
continuing strength over coming months. Business inventories appear to 
have increased very rapidly in the first quarter. The nominal deficit 
on U.S. trade in goods and services widened substantially in January 
and February from its average monthly rate in the fourth quarter. 
Despite indications of persisting pressures on employment costs 
associated with tight labor markets, price inflation has

[[Page 39877]]

remained subdued this year, primarily as a consequence of large 
declines in energy prices.
    Most market interest rates have declined slightly on balance over 
the intermeeting period. Share prices in U.S. equity markets have moved 
up a little further. In foreign exchange markets, the trade-weighted 
value of the dollar in terms of major currencies has changed little on 
net over the period. However, the dollar has risen on balance against 
the currencies of key emerging market economies, particularly those in 
Asia. Equity markets in Asia have fallen substantially over the period 
to near their lows of late 1997, while those in Europe have risen to 
new highs.
    M2 and M3 expanded briskly further in April, but data for late 
April and early May show M2 declining and M3 leveling out. The swing in 
these measures seemed to be related largely to movements of funds 
associated with tax payments. Expansion of total domestic nonfinancial 
debt appears to have moderated somewhat after a pickup earlier in the 
year.
    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 at 
its meeting in February established ranges for growth of M2 and M3 of 1 
to 5 percent and 2 to 6 percent respectively, measured from the fourth 
quarter of 1997 to the fourth quarter of 1998. The range for growth of 
total domestic nonfinancial debt was set at 3 to 7 percent for the 
year. 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.
    In the implementation of policy for the immediate future, the 
Committee seeks conditions in reserve markets consistent with 
maintaining the federal funds rate at an average of around 5-1/2 
percent. In the context of the Committee's long-run objectives for 
price stability and sustainable economic growth, and giving careful 
consideration to economic, financial, and monetary developments, a 
somewhat higher federal funds rate would or a slightly lower federal 
funds rate might be acceptable in the intermeeting period. The 
contemplated reserve conditions are expected to be consistent with 
considerable moderation in the growth in M2 and M3 over coming months.
    By order of the Federal Open Market Committee, July 13, 1998.
Donald L. Kohn,
Secretary, Federal Open Market Committee.
[FR Doc. 98-19710 Filed 7-23-98; 8:45 am]
BILLING CODE 6210-01-F