The Federal Reserve Board's policy-making arm, continuing to aggressively ease its grip on the money supply, decided in December to "reduce pressures" on bank reserves because of concerns that economic growth would be too sluggish.
The Federal Open Market Committee voted 10-to-2 at its regular meeting on Dec. 17 and Dec. 18 to ease its grip on reserves available to the banking system and set short-run targets for its monetary aggregates for the November to March period at the top of their ranges, according to minutes of the meeting released yesterday.
The Fed set its short-run monetary targets at 7 percent for M1, which consists of currency and checking accounts, and 9 percent for M2 and M3, broader measures that include M1 and other deposits. Those goals are at the upper limits of the target ranges set by the Fed for 1985.
In addition, the FOMC lowered its monitoring band on the federal funds rate from between 7 and 10 percent to between 6 and 10 percent.
The Fed indicated that it was concerned about the slow growth in the economy, and that even if growth speeded up, there was not much risk of stimulating new inflationary pressures.
The Fed's aggressive easing posture has been in effect since last August, when economic indicators began to point toward a sharp slowdown in economic activity.
At that time, some members of Congress and the Reagan administration blamed the Fed for pursuing too tight a monetary policy that was keeping interest rates too high and cutting short the economic expansion.
Growth slowed from a 7.1 percent rate in the second quarter to 1.6 percent in the third quarter. It has since rebounded slightly, but the FOMC in its minutes expressed concern that money growth may not be fast enough to keep the expansions going at a moderate pace.
The most dramatic action by the Fed to date has been a cut in the discount rate in November and December. That is the rate the Fed charges on loans to banks.
The FOMC decided in December that "somewhat more rapid growth of M1 would be acceptable for the period ahead, particularly if the faster growth occurred in the context of sluggish expansion in economic activity and continued strength of the dollar in foreign exchange markets," the minutes said.
In discussions during the meetings, some FOMC members emphasized risks of inadequate economic expansion this year and said that "even a relatively rapid pace of economic growth in 1985 would not be likely to incur much risk of stimulating a significant intensification of inflationary pressures."
In addition to domestic concerns, the members said they should also take into account the strength of the dollar in foreign markets and the "severe debt servicing problems of several developing countries."
In recent days, the dollar has hit record highs against major European currencies, resulting in cries for lower interest rates from U.S. farmers and exporters as well as from the Europeans whose currencies are being battered almost daily.
Other members, however, said that the expansion may end up being more "vigorous than was generally expected" and that the impact of recently declining interest rates had not yet been fully tested in the economy.
The two members who dissented were New York Federal Reserve Bank President Anthony Solomon and Fed Governor Lyle Gramley.
Solomon said that although he thought some further easing "would be appropriate," such an action should be gradual.