Federal Reserve officials meeting on March 26 decided to make no change in monetary policy, but several expressed concern about rapid growth of the money supply, according to a record released by the Fed yesterday.
While not actually dissenting from the decision to keep pressure on bank reserves unchanged, a minority "indicated some preference for a directive [to the Fed's open market desk in New York] that specified a slight increase in the degree of reserve restraint," the Fed statement said.
After the March meeting of the Federal Open Market Committee (FOMC), deteriorating economic conditions and new problems at a number of financial institutions caused the central bank aggressively to ease policy. The major move involved cutting the Fed's discount rate -- the rate it charges when financial institutions borrow reserves directly from it -- from 8 percent to 7 1/2 percent, the lowest rate in more than six years.
The FOMC met again last Tuesday, and financial market analysts said yesterday that there has been no indication that its members decided upon any further easing of policy in the wake of the discount rate cut.
The seven Fed governors set the discount rate. The FOMC includes the governors and the 12 Federal Reserve bank presidents, five of whom are voting members at any one time.
The change in sentiment at the Fed since the March meeting was underscored by the fact that the FOMC, if anything, was leaning slightly toward a modest firming up of pressure on bank reserves rather than any easing. The Fed seeks to influence interest rates and conditions in financial markets by varying the rate at which it makes reserves available to financial institutions through the sale or purchase of government securities by its open market desk.
At the March meeting, the FOMC decided to seek growth of the various measures of money, M1, M2 and M3, at annual rates of 6, 7 and 8 percent, respectively, for the period from March to June.
In April, M1, which includes currency in circulation and checking deposits at financial institutions, rose about in line with that objective. However, M2, which includes M1 plus savings and small time deposits, most money market mutual fund shares and other items, declined in April, a most unusual occurence. M3, which includes M2 and large time deposits, grew an insignificant amount.
M1, because of fast growth earlier in the year, remains above the Fed's target range set for it for the year. The other monetary aggregates are well within their respective ranges.
The policy record released yesterday indicated that in March the FOMC members were very concerned about the impact of the nation's rising trade deficit on some parts of the domestic economy, particularly manufacturing.