R. W. Hafer discusses the issues that influenced the policy decisions made by the Federal Open Market Committee (FOMC) last year. Hafer notes that policy decisions were influenced by the unpredicted decline in M1 velocity. This decline rekindled uncertainty about the usefulness of the M1 monetary aggregate as the primary gauge of the direction of monetary policy. As in late 1982, when the FOMC reduced the emphasis it placed on movements in M1 to formulate policy, so in 1985 did the FOMC approach policy decisions with less concern about strict adherence to prestated M1 growth targets. In addition to these developments, several other factors influenced the FOMC policy decision. Economic recovery continued, but at a pace much slower than anticipated. The rate of inflation remained at relatively low levels and interest rates trended downward. The size of the federal and trade deficits caused concern about their impact on financial and goods markets. The decline in the value of the dollar in late 1985 provided yet another factor. To understand the impact of these aspects on policy decisions and discussions, Hafer reviews the FOMC’s long- and short-run policy discussions, setting the economic climate for each meeting through the year. A detailed supplement providing selected excerpts from the published “Minutes” of the FOMC meetings provides a useful chronology of events and polity discussions during 1985.