Title: The FOMC in 1986: Flexible Policy for Uncertain Times
Abstract: HE Federal Reserve’s monetary policy actions during 1986 were influenced by indications of weak economic growth and moderate inflation. The income velocity of money, defined as the ratio of nominal GNP to the narrowly defined money supply Ml, declined even more rapidly in 1986 than it had in the previous year.’ lnterest rates declined on balance over 1986, and the Federal Open Market Committee (het-eafter “Committee” or “FOMC”) viewed their decline and the associated rapid growth of Ml as a desirable development in light of the sluggish economy. As the year progressed, the Committee deemphasized Ml as a guide to policy while focusing on the broader monetary aggregates, M2 and M3, and several indicators of economic and financial conditions. In the uncertain economic environment that prevailed in 1986, the Comrnittee was flexible in its approach to monetary policy. This article reviews the FOMC’s monetar policy decisions during 1986. The Committee’s annual growth objectives for the monetary aggregates are discussed in the next section, and the target ranges for 1986 are compared with actual money growth during Philip A. Nuetzel is an economist at the Federal Reserve Bank of St. Louis. Laura A. Prives provided research assistance. NOTE: Citations referred to as “Record” are to the “Record of Policy Actions of the Federal Open Market Committee” found in various issues of the Federal Reserve Bulletin. Citations referred to as “Report” are to the “Monetary Policy Report to Congress,” also found in various issues of the Federal Reserve Bulletin.